In the aftermath of the JPM CIO prop trading blunder, the firm disclosed that the capital used for risky bets such as attempting to corner the IG or HY markets was the result of excess deposits over loans, which at that time stood at $423 billion, resulting in $323 billion in CIO invested and non Marked-to-Market "Available for Sale" securities. Following yesterday's CFO update on the state of the mortgage market, which we recapped here, and which warned how the recent spike in rates would impact the firm's balance sheet, the firm also provided an updated snapshot of its balance sheet as of June 30, broken down by core capital components. We now know that in the one year period since the London Whale blunder, the firm's available "dry powder" which can be invested in any type of AFS security, or in stocks, or bonds, or any other risk asset for that matter, has now risen to a record $497 billion, the result of a record $1203 billion in deposits offset by just $706 billion in loans, or what we assume is a record low 60% loan-to-deposit ratio. Further, recall that the surge in deposit on bank balance sheets is purely a function of QE, which leads to a rise in deposit books however without a matching increase in loans, as the Fed is now the core-provider of the "credit growth" in the economy, which also means that once tapering take place, and/or QE is stopped outright, bank prop trading capital will at worst see its unprecedented daily increase grind to a halt (or worse, drop, if and when a bank decides to start selling). So what securities is JPM investing this half a trillion in excess cash in? Alas, we don't know. We hope to find out following the next JPM "prop trading" fiasco. With mortgage, and general loan, origination collapsing as a result of the drop in loan demand, it is virtually inevitable that the answer should come soon enough.

James S. Brady Press Briefing Room
12:58 P.M. EDT
Q Two quick things on behalf of the White House Correspondents Association.
MR. EARNEST: Please do.
Q We want to thank you for letting the entire pool in yesterday for the Secret Service event. And we hope that --
MR. EARNEST: We’re glad you enjoyed it.
Q We hope it rubs off on Mr. Carney when he returns to the podium. (Laughter.)
Q Pass that along, too.
MR. EARNEST: Yes, he deserves as much credit for getting in there as I do.
Q Thank you. Media people come and go and we don’t always get to acknowledge that. We don’t get to acknowledge the men and women who work behind the cameras as well. And I just wanted to very quickly thank you for letting us thank Mike Greene, cameraman at CNN, who’s retiring. And to be fair and balanced, a Fox White House producer, former producer, Dave Shott, left us yesterday after 17 years. He’s going to the NFL Network, which is a very cool job.
But Mike has been here for 25 years. (Applause.)
Q Obviously, I didn’t have the sense to leave. (Laughter.)
Q Number of Presidents -- five. Miles flown on Air Force One and the press charter -- probably hundreds of thousands. And having cheese on the charter -- priceless. (Laughter.)
I wanted to say thanks, and I want to yield to the gentle lady from CNN who wants to say something.
Q Mike has been looking forward to this day since we got here. He’s been counting down. (Laughter.) Every day might be State of the Union day to us, but it was 52 days until retirement for Mike. You always have a great attitude and make us look great. And thanks to everybody for your indulgence. (Applause.) Thank you.
Q It means a lot coming from the likes of you. (Laughter.)
MR. EARNEST: Congratulations, Mike.
Q Thank you very much.
MR. EARNEST: I’ve got two quick things I wanted to do at the top. Later this afternoon, delivering on a promise from his State of the Union address, President Obama will sign an executive order creating a presidential commission on election administration. As you may remember, the commission will be chaired by Bob Bauer and Ben Ginsberg, who, among other leadership roles, served as the general counsel for the President’s reelection campaign and the national counsel for Governor Romney’s campaign, respectively. We thank them for the hard work they’ve already dedicated to this effort and for the hours and experience they’ll donate to ensuring its success in the months ahead.
The executive order will direct the commission to submit a final report to the President within six months of the commission’s first public meeting, and it will also ask them to consider a variety of ways to shorten lines and promote the efficient conduct of elections.
That report is intended to serve as a best practices guide for state and local election officials to improve voters’ experience at the polls under their existing election laws. The President also continues to support legislative efforts in Congress to improve the voting experience, make voter registration easier, and increase access to voting for all Americans.
I know that after the State of the Union address, many of you were interested in how this process would advance, and we’ll have -- it will advance this afternoon when the President signs the executive order. As usual, we’ll distribute the text of the executive order after the President has signed it.
Q When is that going to be?
MR. EARNEST: It will be later this afternoon.
Q Pool coverage?
MR. EARNEST: Not this time.
Q Oh, Josh. Your batting average has dropped. (Laughter.)
MR. EARNEST: The second thing I wanted to announce -- I know this is something that we discussed quite a bit yesterday -- about the date that the budget would come out. I know so many of you plan your social lives and professional lives around this. The budget will be released on April 10th of this year. So let’s get the countdown clock started on the appropriate networks.
With that, Josh, I think I’ve exhausted all of my announcements. So we’ll let you start with the questions.
Q Thanks a lot, Josh. This morning, the President in remarks on gun control seemed to be focusing really specifically on background checks, speaking about the broad level of support that he says it receives, and urging Americans to ask their members of Congress specifically to lobby on that issue. Has the White House shifted its focus to background checks as the most attainable of the gun control measures that you’d like to see happen?
MR. EARNEST: It is fair for you to believe, Josh, that the President remains firmly behind the range of legislative proposals that he offered up in mid-January when he gave some remarks on this issue.
As you’ll recall from that January speech, the President initiated 23 separate and specific executive actions that he could do and his administration could do unilaterally to try to put in place some policies that would reduce gun violence. At the same time, he rolled out a whole set of legislative proposals that he would forward to Congress, and he vowed to encourage Congress to act on those proposals. He’s making good on that promise, and that’s what part of today’s event -- that’s what today’s event was about, was ensuring that Congress understands that the President and his commitment to these issues has not waned.
It is clear from some of the public polling that the President cited that there is a lot of bipartisan support all across the country for the common-sense proposals that the President has put forward. There’s also a lot of support among gun owners across the country for the proposals that the President has put forward. We now just need to see some bipartisan action in Congress to get it done.
Q And he spoke this morning pretty emotionally about not wanting to forget about the victims of Newtown, and said shame on us if we do forget. Is he concerned that the moment to act on gun control is slipping away?
MR. EARNEST: No, he’s not concerned about that. What he is concerned about is he’s concerned about making sure that Congress understands that there is strong support all across the country for common-sense measures that both respect the Second Amendment, but also will take important steps, make important progress in reducing gun violence in communities across the country. These steps include a whole range of options -- everything from proposals that would improve mental health services in communities, things that would -- measures that would improve school safety, but also some measures related to gun ownership -- things like closing the loopholes in the background check system that you referred to earlier.
But it also means keeping military-style assault weapons off the streets of our communities. It also means cracking down on people who -- so-called straw purchasers, essentially people who walk into a gun store and purchase a gun with the express purpose of providing it to somebody who shouldn’t -- who wouldn’t otherwise be able to purchase that gun themselves. And also putting in place tougher gun trafficking laws to try to crack down on gun violence in this country.
So the President remains, as you pointed out, passionate about this. And I think that you can anticipate that you’ll hear more from the President on this in the days and weeks ahead.
Q Can you tell us a little bit about what we’ll see this afternoon when the President meets with African leaders?
MR. EARNEST: I can. The President has been looking forward to this meeting for quite some time. Today’s visit is an opportunity for the President and for the United States to underscore our support for sub-Saharan Africa and for democracy. As he has in the past, the President is inviting these leaders here because they represent a side of Africa that is too often overlooked: nations that are making impressive progress and can serve as a positive model for democratic development across the region.
Some of the things that they’ll cover in the context of this meeting would include strengthening support for democratic institutions in these countries, but also in countries throughout sub-Saharan Africa. They’ll also talk about the need and the potential that these countries have for expanding growth and trade and investment in their countries. That certainly promotes economic opportunity in this country as well. They’ll also talk about some strategic issues in terms of how we can advance peace and security in these countries, but also throughout the region. And we’ll also talk about some development opportunities that would help these countries continue to make progress in strengthening the economic infrastructure of those countries.
Q Can I follow on that, since I asked you yesterday --
MR. EARNEST: Sure.
Q Thank you. Josh, when you’re talking about development issues in Africa, is the issue of China coming into play? Because there has been a concern for many, many, many years that infrastructure in Africa and many of the countries in Africa has been built by the Chinese in exchange for oil. And Secretary Kerry has said that this is a major concern about China and Africa, just in recent weeks. Is that going to be one of the topics in the --
MR. EARNEST: Well, I don’t want to get ahead of the meeting. And there will be a pool spray with the entire pool, Mark, where the President will talk about --
Q Your batting average is better now.
MR. EARNEST: (Laughter.) It’s improving. We’re back on the upswing here. But the President will have the opportunity to talk about the conversation that he does have with the leaders of these countries. And I don’t know, frankly, whether or not China will come up in those meetings, but the President will have the opportunity to talk about that.
What I can assure you is that the President is looking to strengthening the relationship that we have with these countries; that there is an opportunity for us to build stronger economic ties between our countries and -- between our country and theirs. That would promote economic growth both in their country and in ours.
These strong ties also are helpful in helping these -- in supporting the democratic institutions that these countries are struggling to build and to capitalize on the progress that they can make, and to ensure that they can actually serve as a foundation of peace and stability in a region that isn’t always known for its peace and stability.
Q So will Secretary Kerry also do a drop-by? Because since he’s having a meeting directly after the meeting with the African leaders --
MR. EARNEST: I don’t know the logistics of Secretary Kerry’s schedule today. We can look into that for you or you can check with the Department of State.
Josh, did you have anything else? I didn’t mean to interrupt you. Okay.
Jeff.
Q Thanks, Josh. The United States flew two stealth bomber practice missions today over South Korea. What message is the United States trying to send with those flights?
MR. EARNEST: Well, as you know, Jeff, the United States has been working with our allies in South Korea on a range of military exercises that are defensive in nature. We do these exercises on an annual basis or so. This exercise today -- or at least in the last day or two -- has included, in this case, some exercises that involved B-2 bombers.
What we have said for quite some time now, in the face of the bellicose rhetoric and threats that have been emanating from the North Koreans, is that we stand shoulder to shoulder with our allies in South Korea to ensure that their -- that the interests of the United States and the allies of the United States remain protected. And that is something that should be evident from the comments of senior administration officials, but should also be evident from the close security cooperation that we have with the South Koreans, including these recent military exercises.
Q And on a separate topic, the President is going to Florida tomorrow. You said before that he would be talking about the economy. Can you give us any more sense about what the message will be tomorrow?
MR. EARNEST: I do have a couple of thoughts on that. As you know, the President believes that even as we pursue balanced deficit reduction, we need to make smart, targeted investments to create jobs and boost our economy. One of those investments that he discussed in his State of the Union address is the need to put Americans back to work -- is the need to put Americans back to work right away building the infrastructure that American business and that American workers need to compete and win in a global 21st century economy.
Tomorrow, at the Port of Miami, the President will continue to flesh out some of his detailed proposals to do just that. The Port of Miami is a major center of commerce and an example of the critical infrastructure improvements that are being undertaken to remain competitive in the global marketplace using the types of combined investment from the federal government, state government and local government, and private investors that the President has called for.
So this is a good opportunity for the President to illustrate the value, both in the short term and the long term, of the important infrastructure investments that the President has talked about for quite some time.
Q So will there be new proposals or is it just a follow-up from proposals he's already made?
MR. EARNEST: Well, stay tuned. I think that we've got a couple of tricks up our sleeve for tomorrow. Okay? Good.
Bill.
Q Is the President relying just on the bully pulpit for gun control, or is he actually calling any of the members who are at home in their districts right now?
MR. EARNEST: I don’t have any specific presidential calls to read out to you, but over the course of the last several weeks the President has been in touch with a number of members of Congress, in the House and the Senate, Democrats and Republicans, to talk about a range of the President's legislative priorities. It should be evident from the President's passionate remarks today about measures that could reduce gun violence in our communities that that is a legislative priority of his.
So the President did indeed talk about his support for some of these proposals, and did encourage members of Congress to take a close look at the specific proposals that the President has offered both because we should be able to find bipartisan common ground around proposals that would demonstrate or that reflect the President's commitment to protecting the Second Amendment, but also reflect the President's commitment to finding measures -- common-sense measures -- that would reduce gun violence in our communities.
Q But will he do it personally, as well as through the media?
MR. EARNEST: I would anticipate that the President will have additional conversations with members of Congress as these measures make their way through the legislative process.
Q How does he feel about Mayor Bloomberg's effort to stimulate the gun control in various key districts?
MR. EARNEST: I haven't had a specific conversation with him about this political campaign that Mayor Bloomberg has undertaken. I can tell you, as a general matter, that as you heard -- I think the President was pretty unequivocal about this in his comments today, that there is strong support all across the country for the common-sense measures that the President has put forward and for some of the measures that are going to be considered in the Senate in the next couple of weeks.
And he was pretty candid about encouraging members of Congress -- or about citizens to contact members of Congress to encourage them to support these proposals. And if there are others across the country who want to make a similar appeal to citizens, to contact their members of Congress and encourage them to support these common-sense measures, the President certainly welcomes that.
Q So he wouldn't object to what Mayor Bloomberg is doing?
MR. EARNEST: No, not at all.
Q And one other question. Is he going to throw out the first pitch somewhere?
MR. EARNEST: That's a good question. I haven't seen that on the schedule yet. But if we add that, we'll let you know. It certainly sounds like a lot of fun.
Q Why not? (Laughter.) And take the pool, will you?
MR. EARNEST: We will.
Q On Bill's question about guns -- obviously, we should note that Republicans are threatening a filibuster in the Senate, and most Republicans in the Senate and House are talking about opposing a lot of these gun control measures. But, as you know, there's a core group of Democrats in the Senate -- maybe about a dozen or so -- who, when the President said today some people are getting squishy, that includes some Democrats as well. In addition to the calls that he might make that Bill was talking about and the targeting that Mayor Bloomberg is doing of Republicans and what not, are there Democrats the President is going to call out and say, look, you've got to come along here, this is an important issue for me?
MR. EARNEST: I'm confident that the President will be speaking to both Democrats and Republicans about his strong support for these proposals. As I mentioned -- and I think the President mentioned this in his remarks as well -- that if you take a look at some of the polls that have been conducted, not just polls of members of Congress, but polls of Americans across the country, that there is very strong support for many of the initiatives that the President has put forward.
Closing loopholes in the background check system is probably the best example of this. There are a couple of polls I've seen now that demonstrate that 90 percent of Americans support closing loopholes in the background check system. And those aren't just Democrats that these polls are surveying. These polls include Republicans -- about 86 percent of Republicans in a recent poll are supportive of efforts to close loopholes in the background check system. And the other thing that I think is notable about this is that these polls also include surveys of gun owners, and 86 percent of gun owners actually support closing loopholes in the background check system.
The President and his spokespeople often will talk about the need to find common ground. It is not hard to find common ground on this issue. It is clear that the American people agree that, for example, closing background checks is a pretty good place to start in terms of common-sense measures that would reduce gun violence.
Q On the issue of common ground, on guns, he wants that. He says, on immigration reform -- he did these interviews yesterday saying he wants bipartisanship. And he is having dinner with Senate Republicans, we hear, in a couple of weeks to talk about grand bargain again. If he wants --
MR. EARNEST: Well, I think he'll cover a range of his legislative priorities in that dinner. So I wouldn’t be surprised -- I guess to Bill's question, I wouldn't be surprised if the President's support for some of these common-sense measures to reduce gun violence does actually come up at the dinner. This is something that is a legislative priority of the President's, and I'm confident that will come up at the dinner.
Now, I think, at the same time, the President is very interested in having this dinner because he is looking forward to the opportunity to hear from these senators. So they'll have a healthy conversation, but it will include some of these common-sense measures to reduce gun violence.
Q So my question is he wants to have that healthy conversation, he wants bipartisanship on all of these issues, and yet, we hear next week he is going out fundraising back on the campaign trail to help elect House Democrats for 2014. When Jay Carney was asked about this a couple of weeks ago -- I think there was a Washington Post story saying the President was going to be focused on 2014, putting Nancy Pelosi back in as Speaker, and he said, no, no, that's not his focus. And here we are beginning of April, way before the 2014 election. Why is he going fundraising already?
MR. EARNEST: Well, the President has some responsibilities as the head of the Democratic Party to support other Democrats. I don't think that's particularly surprising. And I don't think that the President views those two activities as being in conflict. There is an opportunity for the President to try to build common ground in Washington, D.C., to advance his agenda. And whether it is measures like closing loopholes for background checks that have strong bipartisan support -- we're seeing bipartisan support for some of the immigration proposals that are being discussed in the Senate right now. There's even some pretty good bipartisan support around some of the budget proposals. Now, that hasn't necessarily yielded prompt legislative action, but there are Republicans who are sending signals that they agree with the President's balanced approach, or are at least willing to consider it.
So it is certainly possible for the President to continue to move forward in a bipartisan fashion on a range of his own legislative priorities while fulfilling his responsibilities in his support for Democrats in elections. I think the thing that's notable about this -- and I think you alluded to it in your question -- these elections are almost two years away, or at least more than a year and a half away. So there's no reason we need to get wrapped up in discussions about elections. There's plenty of work to do here in Washington, D.C., before we turn our attention to the midterm elections.
Q Last quick thing. He is meeting with the African leaders, you mentioned, this afternoon. He just came back, obviously, from an important foreign trip. Gallup had a survey earlier this month that surveyed citizens in 130 countries, and they found that median approval of U.S. leadership around the world has declined by eight points from 2009, when the President took office, down to 41 percent -- the lowest of his presidency. He obviously made a big deal in the 2008 campaign saying, I want to restore America's standing in the world. Why then do you think it's still in a pretty low standing right now?
MR. EARNEST: I haven't seen that poll. The thing that I would say is I think that there is plenty of anecdotal evidence that American leadership on President Obama's watch has strengthened significantly. I think that was evident anecdotally in the speech that the President delivered in Jerusalem. The reaction that he got from a crowd of Israeli citizens I think was really powerful, and I think that that was reflected in some of the coverage from those remarks.
The President has an upcoming trip to Mexico and Costa Rica at the end of next month, and that will be an opportunity, again, for him to talk about how we can strengthen the ties between the U.S. and Central America -- that there are important people-to-people ties, that there are a lot of immigrants to this country that originated in Central America, so that there are strong cultural and individual ties. There are also strong economic ties, and that there is an opportunity for us to build on that relationship in a way that strengthens the economy here in the U.S.
So there’s an opportunity for the President to demonstrate his leadership in the international community in a really important way, and I think that has been enhanced over the course of his presidency.
Q May I follow on the dinner?
MR. EARNEST: Sure, Jessica.
Q What kind of work is the President doing in between these two dinners to build his relationship with Republican senators?
MR. EARNEST: Well, again, I don't have any specific conversations or calls to read out to you. What the President has certainly demonstrated I think over the course of the last several weeks in particular is his interest in trying to build a rapport, even if it’s just socially, with members of Congress, rank-and-file members of Congress.
And the President is hopeful that that can lay the foundation for constructive dialogue and progress on a range of legislative priorities. We haven’t seen that yet. But this is a process and an effort that I think should be judged over the long term, and I think you’ll do that.
Q Okay, so to dial back and try to come at it at a different direction -- is the White House laying groundwork in between these two dinners to try to get something concrete out of the next dinner?
MR. EARNEST: I wouldn’t anticipate a specific agreement or an avail in the lobby of some restaurant here in Washington to announce a bipartisan agreement on something.
Again, I think these are -- the dinner that the President had at the beginning of this month and the dinner that he’ll have at the beginning of next month are an opportunity for him to lay the groundwork for future agreements. And I think that this is something that I know I’ve been asked about previously, and I know that many people lament the deteriorating social relationships between senior figures in Washington, D.C. that previously -- that there have been -- that some people have speculated that personal relationships have been important to bipartisan agreements. I don't think anybody -- and I don't think even the people who are asking me the question were thinking or were suggesting that just showing up at a cocktail party was going to be the difference between getting a bipartisan agreement and not. But we’re hopeful and the President is hopeful that establishing a useful rapport can be helpful in fostering constructive dialogue down the road.
Now, the other thing I think that the President has found interesting about this process is he has found it helpful to hear directly from these members of Congress about their priorities and their perspectives on some of these things. It’s a helpful dialogue to try to find some common ground. I think many members of Congress have expressed a similar view -- that there were positions that the President has long supported that they weren’t aware of.
And so this is an opportunity for them to put aside the posturing -- to do so without having to worry about the prying eyes of the media, but to actually have a private conversation about their priorities can be useful to finding common ground moving forward. Again, I don’t think that’s something that’s going to happen right away, and there’s certainly not going to be an avail right after the dinner to announce a historic bipartisan agreement. But we’re hopeful that it’s useful in laying the groundwork to more bipartisan cooperation in Washington, D.C.
Q But should we make something of the fact that it’s also on April 10th, the day you say the White House is releasing its budget?
MR. EARNEST: Just a happy confluence of events.
Peter.
Q Josh, if I can follow up on guns. And as long as we’re on the topic of statistics in terms of the number the President cited -- I think it was 9 out of 10 Americans saying -- or the stat you cited -- that they support expanded background checks. But there was another series of statistics that came out I think earlier this week from our colleagues at CBS -- thank you, Bill, for those -- that say that support for stricter gun control laws stands at 47 percent today versus 57 percent, that it’s dropped 10 percent in barely 100 days since Newtown took place. And while the President said, “Shame on us if we have forgotten,” and that these families he stood with today haven’t forgotten, isn’t there some responsibility of this White House not to have acted, notwithstanding 20 events in 100 days, to have done more while that window of opportunity existed?
MR. EARNEST: I think the President did move really quickly after the tragic events at Newtown to try to advance the discussion about common-sense measures to reduce gun violence. The President acted unilaterally, as we discussed. On the day that the President rolled out his proposals in mid-January, he announced 23 executive actions that his administration would take unilaterally to put in place some measures that could contribute to a reduction in gun violence.
The Vice President has been very visible on this topic, as we discussed a little bit yesterday. Between the President and Vice President, they devoted their time to about 20 different interviews and events and other public appearances to encourage Congress to take action. And I think because of the support that’s cited in the poll for a number of the proposals that the President has put forward, I think that you can judge those events as very constructive to this process.
But again, we’re not stopping here. You said the President was demonstrating a pretty clear commitment to continuing the effort on this. And this will actually continue into next week. On Tuesday, the President will travel to Denver where he’ll continue to ask the American people to join him in calling on Congress to pass common-sense measures to reduce gun violence. He’ll meet with local law enforcement officials and community leaders to discuss the new measures the state has recently put in place, including closing back -- including closing loopholes in the background check system to keep guns out of the hands of criminals and others who should not have access to them. So the President started on this very quickly, and our efforts on this will continue forcefully.
Q So given all of those efforts -- and it seems, as you indicate, a lot of emphasis on this, including what's going to happen on Tuesday -- still, at least from these stats, and you cited some stats earlier today, 39 percent of Americans say they want laws kept the way they are; 11 percent say they want them to be less strict. That means that 50 percent of Americans, even after all the emphasis the White House and Joe Biden, the Vice President, has put on this, that Americans, it seems disagree that new laws are needed.
MR. EARNEST: Well, I think that this -- the numbers that you're citing and the numbers that I have cited are an indication that a lot of these are -- a lot of these policy decisions that need to be made are complicated; that they reflect difficult questions, or at least complicated questions, not necessarily difficult ones, but complicated questions related to heritage, related to the rights guaranteed under the Bill of Rights, but also related to broader societal challenges that we face in terms of trying to keep our community safe.
But the President has been resolute about challenging Congress to take action, and not allowing them to suggest that because these things are so complicated, we shouldn’t take action. The President has said, if there is one thing that we can do that will make one child safer, then why wouldn’t we do it?
Q Following up very briefly on a different note. Last week while we were traveling with you and with the President when he was overseas, he said that the use of chemical weapons by the Syrian regime would be viewed as a "game changer." Today, we learned about a series of new attacks -- these by rebels against the Assad regime, or I think at least 10 people were killed there. But the President said that the investigation was basically still underway to determine whether the use of chemical weapons existed. So where do we stand on that, and how much longer do we wait to find out what actually happened?
MR. EARNEST: Well, you referenced the mortar attack that took place in -- at Damascus University today. We've noted the increased tempo in clashes in the Damascus area. We're deeply concerned by the reported mortar attack on a Damascus University faculty of architecture building today, which resulted in reportedly at least 10 deaths.
We cannot confirm at this time who is responsible for the attack, but we have been clear in our insistence that all sides should abide by international law, including not deliberately targeting citizens. So that’s an important part of this.
The second thing is, as you know, the United Nations announced earlier this week that Mr. Sellström of Sweden would head the U.N. fact-finding mission that will investigate allegations of chemical weapons use in Syria.
The United Nations is continuing their efforts to compose the remainder of the team, drawing on expertise from the Organization for the Prohibition of Chemical Weapons and the World Health Organization. And we understand that they hope to begin their investigation within the next week. So we’re certainly pleased to see the U.N. moving quickly to work out the details, and it demonstrates the unique importance the United Nations is placing on the investigation.
Now, this investigation is only going to be successful if the Assad regime cooperates with their efforts to investigate any and all credible allegations of the possible use of chemical weapons in Syria, so we’re hopeful that the Assad regime will cooperate with the group that Mr. Sellström is pulling together.
Roger.
Q You mentioned Denver next Tuesday. Is he doing that on the way the California?
MR. EARNEST: Yes.
Ari.
Q You said the Election Commission report will be six months after the first meeting. Do you have any sense of when the first meeting would be?
MR. EARNEST: I don't yet have a date for that first meeting.
Q Also you mentioned Colorado’s gun law. There are by some reports more than 20 states considering laws going in the other direction to put up roadblocks to any limits on the Second Amendment. Is that on the President’s radar? Is he at all concerned about that?
MR. EARNEST: Well, the measures that the President has put forward would not affect the Second Amendment rights of law-abiding citizens. That is a priority of the President’s as well. The President believes in the Second Amendment, so none of the measures that he’s put forward would have any impact on the Second Amendment rights of law-abiding citizens.
Q Let me rephrase. There are more than 20 states that are considering legislation or passed legislation that would move in the opposite direction from the direction President Obama would like to go. Is that concerning to him?
MR. EARNEST: Well, the President is hopeful that we can -- that the Obama administration can work in bipartisan fashion in Washington and where appropriate to work with state and local officials about measures, again, that would reduce the impact -- or reduce the likelihood of gun violence in communities all across the country. This is one of the reasons that we’re going to Colorado to talk to law enforcement officials and other elected officials in Colorado who have recently taken steps that would make their community safer there in Colorado.
JC.
Q We know the -- Secretary of State Kerry will be here this afternoon. And we also know that he has been speaking to his counterparts in NATO, in the region, in the Far East, as well as Defense Secretary Hagel. How much of that meeting with the Vice President and President will the discussion of the provocative actions and statements from North Korea be a part?
MR. EARNEST: Well, I think you’re referring to the regular weekly meeting that the President has with him. We have made it a practice not to read out the details of that meeting. But suffice it to say that Secretary Kerry has had a very busy travel itinerary over the course of the last week, so I think they’ll have a lot of things to discuss.
The other part of this -- and I think you could get more detail on this from the State Department -- but the State -- senior officials at the State Department have been in regular contact with our colleagues throughout Northeast Asia to talk to them about the continued provocative acts from the North Koreans, and the provocative statements from the North Koreans. As I mentioned a little bit in the briefing yesterday, our allies in the region have a significant stake in resolving those tensions in a diplomatic way and without violence. So I’m confident that our diplomats in the region and our diplomats here in Washington have been coordinating with their counterparts as we work through a delicate situation there.
Q Thanks, Josh.
MR. EARNEST: Goyal.
Q Two questions, thank you. Secretary Kerry just came back from Afghanistan, and people of Afghanistan now asking and they trust now President Obama as ending the war, and also what they're asking me now, what is their future after U.S. or NATO leaves Afghanistan? Was Secretary Kerry carrying any -- carrying any message from the President for the people of Afghanistan?
MR. EARNEST: Well, I think that might be a better question for the State Department, because they can give you more details about the conversations the Secretary had during his trip.
But as the President has expressed many times that the American people want to continue to work with the Afghan people to help them build the democratic institutions that are going to be critical to the safety and security and stability of that country moving forward, even after the war has ended there.
Q And second, as far as the immigration issue is concerned on Capitol Hill, like you’ve been mentioning for the last couple of days, progress has been made there. Talking to more of the Latinos and also illegal people in this country, now they have more faith and trust in President Obama than four years ago. What they are now saying is that time has come for the President to bring them out of the shadow, and working in bad conditions or low wages, and all that. And they are willing to pay taxes and also whatever is needed, just like a good citizen. What they’re asking now -- really, what is their future now, immediate future? What message do you have and the President has for them? And also, what message the President has for the small businesses and its impact on the immigration?
MR. EARNEST: Well, one of the tenets of the comprehensive immigration reform that the President is advocating is a clear path to citizenship for undocumented workers in this country. So what we’ll see in that reform package is a -- what the President would like to see and what the President feels strongly about is ensuring that there is a clear path to citizenship for them.
The President also believes that a top priority needs to be continuing the progress that we’ve made to secure the border. I talked a little bit yesterday about the extensive investments that have been made to secure our border there in terms of the 22,000 personnel that’s on the border, the commitments that have been made in terms of technology, in terms of aircraft, in terms of building fences -- about 650 miles of fencing and walls have been built along the border to secure the border. That’s an important part of comprehensive immigration reform as well.
And I think this clear path to citizenship and these efforts to secure the border reflect a lot of the common ground that we’re hopeful that we can find, to find a bipartisan compromise, to move quickly on comprehensive immigration reform.
Q What have we heard of in this immigration issue -- because President Bush also had the same issue during his presidency, and then President Obama of course has been following and pushing this issue. Where is this big hurdle now? Because this can bring the economy online as far as illegal immigrations are concerned.
MR. EARNEST: There are certainly obvious economic benefits that can be derived from passing -- from the passage and enactment of comprehensive immigration reform. That’s one of the reasons that the President has made it a priority. You do rightly cite that in the past there has been -- there were some efforts to try to find bipartisan ground around comprehensive immigration reform, but quite frankly, Republicans lost their nerve last time.
So we’re hopeful that as we move this process forward, we’re going to find constructive conversations with Republicans in Congress. So far, that’s exactly what we’re seeing. That’s encouraging to the President, it’s encouraging to this administration, and it’s why we’re hopeful that we’re going to find -- as the President said yesterday, that we’ll have comprehensive immigration reform done before the end of the summer.
Chris.
Q Josh, I just want to follow up on the oral arguments that took place in the Supreme Court this week. In the wake of those proceedings, is the President confident the Court will strike down Prop 8 and the Defense of Marriage Act?
MR. EARNEST: Well, Chris, it was about a year ago that I was actually standing at this podium, in this room, where people were warning of the terrible argument that had taken place before the Supreme Court in defense of the President’s Affordable Care Act, and people warning that the Supreme Court was poised to strike down that in a pretty decisive fashion, based solely on the arguments that were made by the attorneys and by the questions that were posed by the justices. Those predictions demonstrated how unwise it is to make predictions about the outcome of Supreme Court cases based solely on the arguments that are presented orally. So I don’t want to judge or prejudge or predict what the Supreme Court’s ruling will be when it’s announced later this summer.
Q Would the President welcome a ruling from the Supreme Court that would institute marriage equality nationwide?
MR. EARNEST: Well, again, I don’t want to get into parsing what -- how the President would respond to possible decisions that are offered by the justices. So when we get an announcement of a decision from them later this summer, you can expect a reaction from us.
Thank you, Chris.
April, a second bite at the apple.
Q Thank you. (Laughter.) How is it determined -- what’s the process within the White House of how it’s determined when an administration official will go to the U.S. Supreme Court and sit in the court and listen to arguments?
MR. EARNEST: Well, I don’t know that there’s a formal process necessarily. This is obviously an issue that the President has spent a lot of his own time thinking about, and I know that there are a number of senior White House officials who were encouraging of the arguments that were being made by the Department of Justice before the Supreme Court.
So it’s not surprising that when you have a high profile argument, like the one -- like the arguments that took place on Tuesday and Wednesday of this week, that there would be senior administration officials who have been involved in this debate, or senior attorneys at the White House who are eager to see those arguments take place in person.
Q So have they been to any other of the days where there were other arguments for other groups that they strongly support in this administration?
MR. EARNEST: I know there were some senior administration officials at the Supreme Court for the Affordable Care Act arguments that I mentioned earlier. But I’m not sure if I have a complete listing of the --
Q They were involved in that. These were officials that were just sitting there, listening to the arguments in support of same-sex marriage.
MR. EARNEST: It's my understanding that there are White House personnel who went to observe the hearings -- or to observe the oral arguments during the Affordable Care Act case last year, as well. So I don’t frankly know how common that is.
Donovan.
Q Thanks, Josh. I want to kind of ask you, once again, on guns. I think the CBS News poll was cited showing that public opinion has waned, and the question was whether the President had moved quickly enough or if he has lost momentum. He cited a Politico story earlier this morning, saying --
MR. EARNEST: You like it when he does that, don’t you? (Laughter.)
Q -- in that story we noted that the Patriot Act was passed within 45 days of September 11, and it's now 100 days. Couldn’t he have done more sooner? Or what went into the decision to take it so methodically?
MR. EARNEST: Well, I think I would not agree at all with your description of this process as methodical. I think what you've seen from this administration is an aggressive process to move quickly to build public support, and to put together specific proposals, proposals that the President could act on unilaterally in the form of executive actions -- 23 different ones, 23 different proposals -- but also a set of legislative proposals that were forwarded to Congress.
As you will recall, just three days after the President appeared at the memorial service for the victims of the Newtown shooting, he stood at this podium with the Vice President right behind him and he called on Congress to hold speedy votes banning military-style assault weapons, high-capacity magazines, and an initiative to close loopholes in the background check system. That was something that the President did less than a week after the shootings.
So the President I think has been very forward-leaning in terms of the way that he is engaged in this process. And the reason for that I think is readily apparent to anybody who is in this room or in the East Room earlier today and heard the President talk about it. He's passionate about these issues. He understands and has seen tragically how families have been ripped apart by violence like this.
And it is the President's determination to see progress made on these issues, and he is going to -- he has already acted quickly to try to build public support, to try to find common ground in a way that both respects the rights guaranteed by the Second Amendment of the Constitution, but in a way that will reduce gun violence in communities all across the country.
These are common-sense measures. Again, that’s reflected in the strong support that these measures have among Americans all across the country, including among American gun owners. So what we need is we need Congress to reflect the will of the people who elected them and act quickly on some of these common-sense measures.
Again, I don’t want to stand up here, and I don’t think even the President would stand here and say that these -- that there are any easy answers to the complicated policy questions posed by the spate of gun violence. But we can't allow that complexity to be an excuse for inaction.
Q So are you saying that the complexity of the issue is why it's taking so long?
MR. EARNEST: I don’t know why -- again, I don’t think it's taking really long. I think what we're seeing is, we're seeing a President who has engaged in this process from the very beginning and has demonstrated a sustained level of engagement at a pretty high operational tempo to marshal public support and encourage Congress to act.
But again, the President has taken 23 executive actions that he could do unilaterally to try to address this problem. So the President has taken definitive action, and he took those actions about a month after the shootings at Sandy Hook Elementary School. At the same time, the President laid out specific proposals that required congressional approval that would also have an impact on gun violence in communities all across the country.
The President has acted very aggressively, and the President's tempo is sustained. He held this event today, that I think many of you found interesting. It was a pretty persuasive message to people all across the country to make their voices heard to their member of Congress on this. And you will hear more from the President on Tuesday in a place that is powerful because of the legislative efforts that they've taken at the state level there to act on these challenges.
So again, we can't -- Congress and others should not be in a position of suggesting that they won't act because it's too complicated. That’s not an excuse. That is not a good excuse.
Q Thank you, Josh.
MR. EARNEST: I’ll take one more.
Q Thank you. Leaders of Brazil, Russia, India, China and South Africa met in Dublin this week for a summit. What is the White House's thoughts and views on the BRICS summit and the decisions they took during the summit, including setting up a development bank?
MR. EARNEST: I have seen some of the reports about this. I don't have in front of me a specific reaction to that. But I can consult with my colleagues at the National Security Council and see if we can get you a specific reaction to that.
I just want to clarify one thing that Amy handed to me. I may have been a little unclear. The visit in Denver is next Wednesday. So I believe that's --
Q We tweeted it already.
MR. EARNEST: I know, I know. (Laughter.) So let's just make sure we get this right before I leave. So, yes, it's next Wednesday, which I believe is April 3rd. Do I have that right? So Wednesday, April 3rd, the President will be in Denver.
Q Is the budget really April 10th? (Laughter.)
MR. EARNEST: The budget is really April 10th. I got that date right. One out of two isn't bad -- right, Mark?
Q Josh, more seriously, just before you go -- on the issue of Nelson Mandela, obviously this appears like this is a more serious health issue than past visits he has had at the hospital. Has the President had conversations with Mr. Mandela recently? And how is he being kept apprised of his health?
MR. EARNEST: Well, I know the President has found President Mandela to be an inspiration in his own personal life, but also in his professional career. The President had the opportunity to meet former President Mandela when he traveled to Africa as a senator. And I know that they've had telephone conversations.
The First Lady and the Obama girls had the opportunity to visit Mr. Mandela in his home when they traveled to Africa just a couple of years ago. And I know that they found that to be a very powerful visit for them. The President is being kept apprised of the former President's health condition. And, certainly, our thoughts and prayers go out to the former President and his family.
Thanks, everybody.
END
1:33 P.M. EDT

Submitted by James H. Kunstler via Peak Prosperity, All the sordid and spellbinding rackets working their hoodoo on the financial scene have obscured a whole other dimension of the fiasco that America finds itself in, namely the way we have arranged the logistics of everyday life on our landscape: the tragedy of suburbia. I call it a tragedy because it represents a sequence of extremely unfortunate choices made by our society over several generations, and history will not forgive the excuses we make for ourselves, nor will it shed a tear for the tribulations we will induce for ourselves by living this way. History may, however, draw attention to our remarkable lack of a sense of consequence in transforming this lovely, beckoning New World continent into a wilderness of free parking. In any case, we’re stuck with what we’ve done and the question naturally arises: what will we do now? A Confused Public When you show a photo to any random audience of Americans of some ghastly boulevard of strip malls and big box stores, with the many layers of incoherent signage, and ask them what’s wrong with the picture, they always say “everyplace is the same as every other place… it’s all the same!” That is their chief complaint and it is off the mark. They don’t get it, really. There are many places and things in the built-by-humans world that are characterized by uniformity or sameness. To the casual observer, the ancient hill towns of Tuscany look virtually identical from 500 meters distance. Montepulciano and Pienza might be as hard to tell apart for the average American tourist as a WalMart in Hackensack from a WalMart in Oxnard. But you will hear very few complaints from tourists about the sameness of the design scheme in the Italian villages: the red tile rooftops on every building, the narrow, twisting streets, the stuccoed masonry walls, the casement windows with their functional shutters, etc. Few American tourists return from Paris grousing that the boulevards were monotonous and gave them a headache. This is because the sameness observed in these foreign places is a uniformity of excellence. The problem in America is different: not just that it’s all the same, but the same miserably low quality. The parking lots are all equally dispiriting, whether in New Jersey or Santa Cruz. The tract housing subdivisions are all equally inauthentic and lacking in conviction. The big box stores are all equally pernicious. The public realm all over the USA is uniformly degraded (or non-existent). Often these characteristics are summed up as “ugliness, but it’s actually worse than that. The built environment is as immersive for people as water is for fish, and the immersive “ugliness” of most places around the USA is entropy made visible. It indicates not simple carelessness but a vivid drive toward destruction, decay and death: the stage-set of a literal death trip, of a society determined to commit suicide. Far from being a mere matter of esthetics, suburbia represents a compound economic catastrophe, ecological debacle, political nightmare, and spiritual crisis — for a nation of people conditioned to spend their lives in places not worth caring about. Suburbia is also largely behind our current state of political paralysis because it represents a gigantic legacy of sunk costs, investments that have transformed themselves into liabilities. The unwillingness to acknowledge that transition makes it impossible for us to construct a coherent consensus about what is happening and what we might do about it. We ought to know, for instance, that we face a daunting predicament over our oil supply. It’s no longer cheap. Alas, our drive-in Utopia was designed to run on cheap oil. Hence the clear implication is that suburbia has rather poor prospects going forward. I would actually go further and state categorically that it is a living arrangement with no future. It is in the nature of sunk costs to provoke in people a psychology of previous investment. Having sunk much of our accumulated collective wealth (our capital) in this living arrangement with no future, we are afraid to let go of it, or even reform it substantially. Instead, The Fear of facing our gigantic losses prompts a retreat into denial and wishful thinking. The higher the price of oil goes, the more the economy contracts, the more frightened people get — and the more determined to seek solace in magical rescue remedies. Thus, the recent cavalcade of nonsense and propaganda telling the public that shale oil and “drill, baby, drill” will soon turn America into “the next Saudi Arabia,” that we are about to become “energy independent,” that we have “a hundred years of shale gas.” These dishonest memes may be floated by mendacious PR spin doctors in the pay of oil and gas companies, but they wouldn’t be effective if the public itself wasn’t so desperate to hear the “good news” that we can continue living exactly the way we do. The mainstream media falls for it, too, not because they are necessarily paid stooges of the energy companies, but because The Fear affects them as well. The Fear, of course, especially affects American homeowners, most of whose homes exist in suburbia, and who have already been battered by five years of lost equity, lost incomes, calls from collection agents, the scary visitations of re-po men, and all the other now-familiar manifestations of everyday financial terror. The Money Problem Now, it is coming to be understood that there is an additional deeper relationship between the end of cheap oil and the workings of banking and capital. As energy “inputs” to an industrial economy decline, the ability to generate wealth declines too — and contrary to conventional “wisdom,” it is not offset by “efficiencies,” high-tech or otherwise. In fact, the decline of true capital accumulation in the USA since the 1970s was offset only by the hypertrophic unnatural enlargement of the financial sector from about 5 percent of the economy to 40 percent today. The sector transformed its original mission of managing and deploying accumulated wealth for purposeful enterprise (a.k.a. investment) to sets of rackets designed to game financial mechanisms (markets, interests rates) in order to get something for nothing. It amounted to a sort of national economic self-vandalism. Much of that putative “activity” was mere churn-for-fee hanky-panky, the wash-rinse-and-repeat cycles of institutional money managers creaming off profits from the pointless movements of money in and out of accounts. Perhaps even more of the financial sector growth was the “innovation” of new swindles and frauds, the biggest and most blatant being the housing bubble, a massive “control fraud” in which suburban houses were used to collateralize deliberately mispriced bonds (debt obligations) on the grand scale in order for giant firms to collect insurance on their failure, in addition to other fees and profits garnered for manufacturing and selling the damn things. Much of that story remains shrouded in mystery because no prosecutions were mounted against the gigantic banks involved, there was no effort to pursue the truth or justice, and the statute of limitations clock is rapidly ticking down. What we can say about it is that the rule of law obviously got lost in shuffle, and that the continued absence of the rule of law in banking is a profound threat to civilized life. Computerization was certainly an enabler of these monumental shenanigans, and it produced one startling diminishing return: the inability of banks and governments to accurately report numbers on their balance sheets — hugely ironic given the phenomenal math abilities of computers. We find ourselves now in the unfortunate situation where accounting fraud has become the basic operating system of banking and government — not a very salutary prospect for managing civilized human affairs — while much of the nation’s business has been reduced to a sorry matrix of rackets. More to the point perhaps is that the diminished accumulation of real wealth due to decreasing inputs of the master energy resource — cheap oil — has impaired the ability of interest to be repaid on the grand scale. There was a correlation between abundant cheap oil and the creation of abundant credit. That relationship is now broken and there are more paper (or computer) claims against wealth than there is wealth, which is no longer growing, to pay back the debt. Hence, the interventions of governments and central banks to offset this ruinous new dynamic and artificially prop up the price of assets, i.e. collateral subject to liquidation at bargain prices by insolvent debtors. The unintended consequences of this monkey business beats a path straight to currency wars, inflation, loss of legitimacy, political uproar, and knock-on effects easily more disastrous. The breakdown of debt repayment has in turn crippled the crucial and fundamental operations of compound interest in banking, while the dishonest work-arounds by central banks and governments in the form of interest rate manipulations and bailouts have obscured the truth of what is happening: a general failure of capital formation. So, What To Be Done? The bottom line is that our future will be defined as much by capital scarcity as by energy scarcity. They synergize each other’s failures. Politically, all this mischief has manifested as a campaign to sustain the unsustainable, to keep all the rackets running at all costs, including most particularly the suburban way of life. It is unlikely that we will succeed at that — though it does account for the desperation running through the national zeitgeist these days. Rather, the mandates of reality will compel us to comprehensively reform and re-order all the activities of civilized life, and I think how this will occur can be stated plainly and categorically. In Part II: The Essential Elements for A Sustainable Future we lay out the reforms that will be most needed in restructuring our way of life to fit the constraints of the natural world we live in. The good news is, it can be done - and done in a way we have great odds of enjoying more than our current blindly gluttonous modality of living. What you can count on is that we will return to the traditional mode of assembling human habitats, that is, integral, walkable, urban places on the variable scale of village-town-city with work, commerce, housing, and culture woven tightly together in the recognizable form of a real civic organism, not a simulacrum or a cartoon of one — places that add up to more than the sum of their parts, places worthy of our affection that we can call “home” without irony or regret.

PAUL KRUGMAN addresses the question of why, if there is a big output gap, we don't observe deflation. He points to the literature on persistent large output gaps (PLOGs!), which suggests that the Phillips curve relationship—the trade-off between inflation and unemployment—is tight when output gaps are large, but that disinflation decelerates at very low inflation rates. And to explain that deceleration he points to nominal rigidities: essentially, wages and lots of prices can very easily go from rising at a fast pace to rising at a slow pace but don't easily switch from rising to falling.Those are important dynamics, but I'm not sure he does the most effective job explaining what actually seems to be occurring. I'd say there are three big things worth noting. The first is that we do indeed observe substantial disinflation in the absence of countercyclical policy, all across the rich world—even to the point of deflation in some cases. We see this in America, Europe, Japan, and even in "high-inflation" Britain, where annual inflation fell from just over 5% to just over 2% from 2011 to 2012. In general, it is difficult to sustain price increases when there is excess capacity in the economy, and there is indeed excess capacity across the advanced economies.Second, however, we do observe decelerating disinflation at low levels of inflation, and this does appear to be due in part to nominal rigidities. It's not the case that every wage and every price are rigid. But empirical evidence does show that there are many cases in which it is much more difficult to impose nominal wage cuts than it is to leave nominal wages flat or to reduce their rate of growth, and these rigidities have real costs. But given a large enough output gap we would nonetheless expect disinflation to eventually turn to deflation. In 2009, short-run inflation expectations briefly turned negative. Prices are now falling across much of the euro zone. And deflation has obviously been a chronic problem in Japan. The answer to the question of why deflation in, say, America hasn't been sustained despite little progress closing the output gap is extremely simple: the Fed has been determined not to allow that to happen. Last May, I posted the chart below: Matt O'Brien updates the chart through early 2013 here. What the record shows is that disinflation below 2% inflation prompts aggressive Fed reactions, which are generally successful at reversing inflation expectations. The critical difference between the Depression and the Great Recession was that Great-Recession-era central banks were determined to avert deflation and where willing to prop up the financial system, drop rates to zero, and engage in unconventional policy in order to keep inflation positive.Two further thoughts flow from this analysis. One is that the Fed bulwark against deflation means that many of the up-is-down aspects of liquidity traps, like the "paradox of toil", don't apply; increases in economic potential due to supply-side measures don't lead to more deflation and therefore don't worsen the downturn. And the other is that the Fed's observed success in averting deflation should lead one to ask whether its control over inflation expectations suddenly evaporates once those expectations hit 2%. My view is that it does not—why should it, after all?—and that the main constraint on a faster economic recovery is the Fed's reluctance to push inflation over 2%. I suspect Mr Krugman disagrees, but this seems to me to be the most straightforward conclusion to draw from the experience since 2008.Let me pre-emptively note that I am not assuming a small or zero multiplier on fiscal policy. Depending on the Fed's reaction function, fiscal stimulus can and probably has augmented recovery, while fiscal austerity may not be and probably has not been entirely offset by expansionary monetary policy. And while I believe that the Fed could have generated a turnaround in inflation expectations in early 2009 without the fiscal actions of TARP and ARRA, I certainly can't rule out the possibility that it couldn't have. Since March of 2009, however, it looks clear to me that the Fed's actions have been both necessary and sufficient to arrest disinflation.

James S. Brady Press Briefing Room
11:39 A.M. EST
THE PRESIDENT: Good morning, everybody. As you know, I just met with leaders of both parties to discuss a way forward in light of the severe budget cuts that start to take effect today. I told them these cuts will hurt our economy. They will cost us jobs. And to set it right, both sides need to be willing to compromise.
The good news is the American people are strong and they’re resilient. They fought hard to recover from the worst economic crisis since the Great Depression, and we will get through this as well. Even with these cuts in place, folks all across this country will work hard to make sure that we keep the recovery going. But Washington sure isn’t making it easy. At a time when our businesses have finally begun to get some traction -- hiring new workers, bringing jobs back to America -- we shouldn’t be making a series of dumb, arbitrary cuts to things that businesses depend on and workers depend on, like education, and research, and infrastructure and defense. It’s unnecessary. And at a time when too many Americans are still looking for work, it’s inexcusable.
Now, what’s important to understand is that not everyone will feel the pain of these cuts right away. The pain, though, will be real. Beginning this week, many middle-class families will have their lives disrupted in significant ways. Businesses that work with the military, like the Virginia shipbuilder that I visited on Tuesday, may have to lay folks off. Communities near military bases will take a serious blow. Hundreds of thousands of Americans who serve their country -- Border Patrol agents, FBI agents, civilians who work at the Pentagon -- all will suffer significant pay cuts and furloughs.
All of this will cause a ripple effect throughout our economy. Layoffs and pay cuts means that people have less money in their pockets, and that means that they have less money to spend at local businesses. That means lower profits. That means fewer hires. The longer these cuts remain in place, the greater the damage to our economy -- a slow grind that will intensify with each passing day.
So economists are estimating that as a consequence of this sequester, that we could see growth cut by over one-half of 1 percent. It will cost about 750,000 jobs at a time when we should be growing jobs more quickly. So every time that we get a piece of economic news, over the next month, next two months, next six months, as long as the sequester is in place, we’ll know that that economic news could have been better if Congress had not failed to act.
And let’s be clear. None of this is necessary. It’s happening because of a choice that Republicans in Congress have made. They’ve allowed these cuts to happen because they refuse to budge on closing a single wasteful loophole to help reduce the deficit. As recently as yesterday, they decided to protect special interest tax breaks for the well-off and well-connected, and they think that that’s apparently more important than protecting our military or middle-class families from the pain of these cuts.
I do believe that we can and must replace these cuts with a more balanced approach that asks something from everybody: Smart spending cuts; entitlement reform; tax reform that makes the tax code more fair for families and businesses without raising tax rates -- all so that we can responsibly lower the deficit without laying off workers, or forcing parents to scramble for childcare, or slashing financial aid for college students.
I don’t think that’s too much to ask. I don’t think that is partisan. It’s the kind of approach that I’ve proposed for two years. It’s what I ran on last year. And the majority of the American people agree with me in this approach, including, by the way, a majority of Republicans. We just need Republicans in Congress to catch up with their own party and their country on this. And if they did so, we could make a lot of progress.
I do know that there are Republicans in Congress who privately, at least, say that they would rather close tax loopholes than let these cuts go through. I know that there are Democrats who’d rather do smart entitlement reform than let these cuts go through. So there is a caucus of common sense up on Capitol Hill. It’s just -- it’s a silent group right now, and we want to make sure that their voices start getting heard.
In the coming days and in the coming weeks I’m going to keep on reaching out to them, both individually and as groups of senators or members of the House, and say to them, let’s fix this -- not just for a month or two, but for years to come. Because the greatest nation on Earth does not conduct its business in month-to-month increments, or by careening from crisis to crisis. And America has got a lot more work to do.
In the meantime, we can’t let political gridlock around the budget stand in the way of other areas where we can make progress. I was pleased to see that the House passed the Violence Against Women Act yesterday. That is a big win for not just women but for families and for the American people. It’s a law that’s going to save lives and help more Americans live free from fear. It’s something that we’ve been pushing on for a long time. I was glad to see that done. And it’s an example of how we can still get some important bipartisan legislation through this Congress even though there is still these fiscal arguments taking place.
And I think there are other areas where we can make progress even with the sequester unresolved. I will continue to push for those initiatives. I’m going to keep pushing for high-quality preschool for every family that wants it. I’m going to keep pushing to make sure that we raise the minimum wage so that it’s one that families can live on. I’m going to keep on pushing for immigration reform, and reform our voting system, and improvements on our transportation sector. And I’m going to keep pushing for sensible gun reforms because I still think they deserve a vote.
This is the agenda that the American people voted for. These are America’s priorities. They are too important to go unaddressed. And I’m going to keep pushing to make sure that we see them through.
So with that, I’m going to take some questions. I’m going to start with Julie.
Q Thank you, Mr. President. How much responsibility do you feel like you bear for these cuts taking effect? And is the only way to offset them at this point for Republicans to bend on revenue, or do you see any alternatives?
THE PRESIDENT: Look, we've already cut $2.5 trillion in our deficit. Everybody says we need to cut $4 trillion, which means we have to come up with another trillion and a half. The vast majority of economists agree that the problem when it comes to deficits is not discretionary spending. It's not that we're spending too much money on education. It's not that we're spending too much money on job training, or that we're spending too much money rebuilding our roads and our bridges. We're not.
The problem that we have is a long-term problem in terms of our health care costs and programs like Medicare. And what I've said very specifically, very detailed is that I'm prepared to take on the problem where it exists -- on entitlements -- and do some things that my own party really doesn't like -- if it's part of a broader package of sensible deficit reduction. So the deal that I've put forward over the last two years, the deal that I put forward as recently as December is still on the table. I am prepared to do hard things and to push my Democratic friends to do hard things.
But what I can't do is ask middle-class families, ask seniors, ask students to bear the entire burden of deficit reduction when we know we've got a bunch of tax loopholes that are benefiting the well-off and the well-connected, aren't contributing to growth, aren't contributing to our economy. It's not fair. It's not right. The American people don't think it's fair and don't think it's right.
So I recognize that Speaker Boehner has got challenges in his caucus. I recognize that it's very hard for Republican leaders to be perceived as making concessions to me. Sometimes, I reflect is there something else I could do to make these guys -- I'm not talking about the leaders now, but maybe some of the House Republican caucus members -- not paint horns on my head. And I genuinely believe that there's an opportunity for us to cooperate.
But what doesn't make sense -- and the only thing that we've seen from Republicans so far in terms of proposals -- is to replace this set of arbitrary cuts with even worse arbitrary cuts. That's not going to help the economy. That's not going to help growth. That's not going to create jobs. And as a number of economists have noted, ironically, it doesn't even reduce our deficit in the smartest way possible or the fastest way possible.
So in terms of going forward, my hope is that after some reflection -- as members of Congress start hearing from constituents who are being negatively impacted, as we start seeing the impact that the sequester is having -- that they step back and say, all right, is there a way for us to move forward on a package of entitlement reforms, tax reform, not raising tax rates, identifying programs that don't work, coming up with a plan that's comprehensive and that makes sense. And it may take a couple of weeks. It may take a couple of months, but I'm just going to keep on pushing on it. And my view is that, ultimately, common sense prevails.
But what is true right now is that the Republicans have made a choice that maintaining an ironclad rule that we will not accept an extra dime’s worth of revenue makes it very difficult for us to get any larger comprehensive deal. And that's a choice they're making. They're saying that it's more important to preserve these tax loopholes than it is to prevent these arbitrary cuts.
And what's interesting is Speaker Boehner, just a couple months ago, identified these tax loopholes and tax breaks and said we should close them and raise revenue. So it's not as if it's not possible to do. They themselves have suggested that it's possible to do. And if they believe that in fact these tax loopholes and these tax breaks for the well-off and the well-connected aren’t contributing to growth, aren't good for our economy, aren't particularly fair and can raise revenue, well, why don’t we get started? Why don’t we do that?
It may be that because of the politics within the Republican Party, they can't do it right now. I understand that. My hope is, is that they can do it later.
And I just want to repeat, Julie, because I think it's very important to understand, it's not as if Democrats aren't being asked to do anything, either, to compromise. There are members of my party who violently disagree with the notion that we should do anything on Medicare. And I'm willing to say to them, I disagree with you, because I want to preserve Medicare for the long haul. And we're going to have some tough politics within my party to get this done.
This is not a situation where I'm only asking for concessions from Republicans and asking nothing from Democrats. I'm saying that everybody is going to have to do something. And the one key to this whole thing is trying to make sure we keep in mind who we're here for. We are not here for ourselves, we're not here for our parties, we're not here to advance our electoral prospects. We're here for American families who have been getting battered pretty good over the last four years, are just starting to see the economy improve; businesses are just starting to see some confidence coming back. And this is not a win for anybody, this is a loss for the American people.
And, again, if we step back and just remind ourselves what it is we're supposed to be doing here, then hopefully common sense will out in the end.
Q It sounds like you're saying that this is a Republican problem and not one that you bear any responsibility for.
THE PRESIDENT: Well, Julie, give me an example of what I might do.
Q I'm just trying to clarify your statement.
THE PRESIDENT: Well, no, but I'm trying to clarify the question. What I'm suggesting is, I've put forward a plan that calls for serious spending cuts, serious entitlement reforms, goes right at the problem that is at the heart of our long-term deficit problem. I've offered negotiations around that kind of balanced approach. And so far, we've gotten rebuffed because what Speaker Boehner and the Republicans have said is, we cannot do any revenue, we can't do a dime's worth of revenue.
So what more do you think I should do? Okay, I just wanted to clarify. (Laughter.) Because if people have a suggestion, I'm happy to -- this is a room full of smart folks.
All right -- Zach Goldfarb.
Q Mr. President, the next focal point seems to be the continuing resolution that’s funding the government at the end of the month, that expires at the end of the month. Would you sign a CR that continues the sequester but continues to fund the government? And in a related point, how do you truly reach the limits of your persuasive power? Is there any other leverage you have to convince the Republicans, to convince folks that this isn’t the way to go?
THE PRESIDENT: Well, I’d like to think I’ve still got some persuasive power left. Let me check. (Laughter.) Look, the issue is not my persuasive power. The American people agree with my approach. They agree that we should have a balanced approach to deficit reduction.
The question is can the American people help persuade their members of Congress to do the right thing, and I have a lot of confidence that over time, if the American people express their displeasure about how something is working, that eventually Congress responds. Sometimes there is a little gap between what the American people think and what Congress thinks. But eventually Congress catches up.
With respect to the budget and keeping the government open -- I’ll try for our viewing audience to make sure that we’re not talking in Washington gobbledygook. What’s called the continuing resolution, which is essentially just an extension of last year’s budget into this year’s budget to make sure that basic government functions continue, I think it’s the right thing to do to make sure that we don't have a government shutdown. And that's preventable.
We have a Budget Control Act, right? We agreed to a certain amount of money that was going to be spent each year, and certain funding levels for our military, our education system, and so forth. If we stick to that deal, then I will be supportive of us sticking to that deal. It’s a deal that I made.
The sequester are additional cuts on top of that. And by law, until Congress takes the sequester away, we’d have to abide by those additional cuts. But there’s no reason why we should have another crisis by shutting the government down in addition to these arbitrary spending cuts.
Q Just to make it 100 percent clear, you’d sign a budget that continues to fund the government even at the lower levels of the sequester, even if you don't prefer to do that?
THE PRESIDENT: Zach, I’m not going to -- I never want to make myself 100 percent clear with you guys. (Laughter.) But I think it’s fair to say that I made a deal for a certain budget, certain numbers. There’s no reason why that deal needs to be reopened. It was a deal that Speaker Boehner made as well, and all the leadership made. And if the bill that arrives on my desk is reflective of the commitments that we’ve previously made, then obviously I would sign it because I want to make sure that we keep on doing what we need to do for the American people.
Jessica.
Q Mr. President, to your question, what could you do -- first of all, couldn’t you just have them down here and refuse to let them leave the room until you have a deal? (Laughter.)
THE PRESIDENT: I mean, Jessica, I am not a dictator. I’m the President. So, ultimately, if Mitch McConnell or John Boehner say, we need to go to catch a plane, I can't have Secret Service block the doorway, right? So --
Q But isn’t that part of leadership? I’m sorry to interrupt, but isn’t --
THE PRESIDENT: I understand. And I know that this has been some of the conventional wisdom that's been floating around Washington that somehow, even though most people agree that I’m being reasonable, that most people agree I’m presenting a fair deal, the fact that they don't take it means that I should somehow do a Jedi mind-meld with these folks and convince them to do what’s right. Well, they're elected. We have a constitutional system of government. The Speaker of the House and the leader of the Senate and all those folks have responsibilities.
What I can do is I can make the best possible case for why we need to do the right thing. I can speak to the American people about the consequences of the decisions that Congress is making or the lack of decision-making by Congress. But, ultimately, it’s a choice they make.
And this idea that somehow there’s a secret formula or secret sauce to get Speaker Boehner or Mitch McConnell to say, you know what, Mr. President, you’re right, we should close some tax loopholes for the well-off and well-connected in exchange for some serious entitlement reform and spending cuts of programs we don't need. I think if there was a secret way to do that, I would have tried it. I would have done it.
What I can do is I can make the best possible argument. And I can offer concessions, and I can offer compromise. I can negotiate. I can make sure that my party is willing to compromise and is not being ideological or thinking about these just in terms of political terms. And I think I've done that and I will continue to do that.
But what I can't do is force Congress to do the right thing. The American people may have the capacity to do that. And in the absence of a decision on the part of the Speaker of the House and others to put middle-class families ahead of whatever political imperatives he might have right now, we're going to have these cuts in place. But, again, I'm hopeful about human nature. I think that over time people do the right thing. And I will keep on reaching out and seeing if there are other formulas or other ways to jigger this thing into place so that we get a better result.
Q What do you say to the people like Mayor Bloomberg -- who is no critic of yours in general; he endorsed you -- who argues that there is some what he calls "posturing" in these claims that there are going to be big layoffs and a lot of people out of work, and thinks that the effects of the spending cuts are being overstated by the administration?
THE PRESIDENT: Well Jessica, look, I'll just give you an example. The Department of Defense right now has to figure out how the children of military families are going to continue with their schooling over the next several months, because teachers at these Army bases are typically civilians. They are therefore subject to furlough, which means that they may not be able to teach one day a week.
Now, I expect that we'll be able to manage around it. But if I'm a man or woman in uniform in Afghanistan right now, the notion that my spouse back home is having to worry about whether or not our kids are getting the best education possible, the notion that my school for my children on an Army base might be disrupted because Congress didn't act, that's an impact. Now, Mayor Bloomberg and others may not feel that impact. I suspect they won't. But that family will.
The Border Patrol agents who are out there in the hot sun, doing what Congress said they're supposed to be doing, finding out suddenly that they're getting a 10-percent pay cut and having to go home and explain that to their families, I don't think they feel like this is an exaggerated impact. So I guess it depends on where you sit.
Now, what is absolutely true is that not everybody is going to feel it. Not everybody is going to feel it all at once. What is true is that the accumulation of those stories all across this country, folks who suddenly -- might have been working all their lives to get an education, just so that they can get that job and get out of welfare and they've got their kid in Head Start, and now, suddenly, that Head Start slot is gone and they're trying to figure out how am I going to keep my job, because I can't afford child care for my kid; some of the suppliers for those shipbuilders down in Virginia, where you've got some suppliers who are small businesses, this is all they do, and they may shut down those companies, and their employees are going to be laid off -- the accumulation of all of those stories of impact is going to make our economy weaker. It's going to mean less growth. It's going to mean hundreds of thousands of jobs lost.
That is real. That’s not -- we're not making that up. That’s not a scare tactic, that’s a fact.
Starting tomorrow, everybody here, all the folks who are cleaning the floors at the Capitol -- now that Congress has left, somebody is going to be vacuuming and cleaning those floors and throwing out the garbage -- they're going to have less pay. The janitors, the security guards, they just got a pay cut, and they've got to figure out how to manage that. That’s real.
So I want to be very clear here. It is absolutely true that this is not going to precipitate the kind of crisis we talked about with America defaulting and some of the problems around the debt ceiling. I don’t anticipate a huge financial crisis, but people are going to be hurt. The economy will not grow as quickly as it would have. Unemployment will not go down as quickly as it would have -- and there are lives behind that. And that’s real. And it's not necessary -- that’s the problem.
Christi Parsons.
Q Thank you.
THE PRESIDENT: Hey, Christi.
Q Mr. President, your administration weighed in yesterday on the Proposition 8 case. A few months ago it looked like you might be averse to doing that, and I just wondered if you could talk a little bit about your deliberations and how your thinking evolved on that. Were there conversations that were important to you? Were there things that you read that influenced your thinking?
THE PRESIDENT: As everybody here knows, last year, upon a long period of reflection, I concluded that we cannot discriminate against same-sex couples when it comes to marriage; that the basic principle that America is founded on -- the idea that we're all created equal -- applies to everybody, regardless of sexual orientation, as well as race or gender or religion or ethnicity.
And I think that the same evolution that I've gone through is an evolution that the country as a whole has gone through. And I think it is a profoundly positive thing. So that when the Supreme Court essentially called the question by taking this case about California's law, I didn’t feel like that was something that this administration could avoid. I felt it was important for us to articulate what I believe and what this administration stands for.
And although I do think that we're seeing, on a state-by-state basis, progress being made -- more and more states recognizing same-sex couples and giving them the opportunity to marry and maintain all the benefits of marriage that heterosexual couples do -- when the Supreme Court asks, do you think that the California law, which doesn't provide any rationale for discriminating against same-sex couples other than just the notion that, well, they're same-sex couples, if the Supreme Court asks me or my Attorney General or Solicitor General, do we think that meets constitutional muster, I felt it was important for us to answer that question honestly -- and the answer is no.
Q And given the fact that you do hold that position about gay marriage, I wonder if you thought about just -- once you made the decision to weigh in, why not just argue that marriage is a right that should be available to all people of this country?
THE PRESIDENT: Well, that's an argument that I’ve made personally. The Solicitor General in his institutional role going before the Supreme Court is obliged to answer the specific question before them. And the specific question presented before the Court right now is whether Prop 8 and the California law is unconstitutional.
And what we’ve done is we’ve put forward a basic principle, which is -- which applies to all equal protection cases. Whenever a particular group is being discriminated against, the Court asks the question, what’s the rationale for this -- and it better be a good reason. And if you don't have a good reason, we’re going to strike it down.
And what we’ve said is, is that same-sex couples are a group, a class that deserves heightened scrutiny, that the Supreme Court needs to ask the state why it’s doing it. And if the state doesn't have a good reason, it should be struck down. That's the core principle as applied to this case.
Now, the Court may decide that if it doesn't apply in this case, it probably can't apply in any case. There’s no good reason for it. If I were on the Court, that would probably be the view that I’d put forward. But I’m not a judge, I’m the President. So the basic principle, though, is let’s treat everybody fairly and let’s treat everybody equally. And I think that the brief that's been presented accurately reflects our views.
Ari Shapiro.
Q Thank you, Mr. President. You said a few minutes ago and you’ve said repeatedly that the country has to stop careening from crisis to crisis.
THE PRESIDENT: Right.
Q So with a few crises behind us and a few more crises ahead of us, taking a step back from this specific debate over the sequester, how, as the leader of this country, do you plan to stop the country from careening from crisis to crisis?
THE PRESIDENT: Well, a couple of things. Number one is to make sure that we keep making progress wherever we can on things that are important to middle-class Americans and those who are fighting to get into the middle class. So if you set aside budget fights for a second, we’ve been able to get now the Violence Against Women Act done. The conversations that are taking place on a bipartisan basis around immigration reform are moving forward. We’ve seen great interest in a bipartisan fashion around how we can continue to improve our education system, including around early childhood education. There have been constructive discussions around how do we reduce gun violence.
And what I’m going to keep on trying to do is to make sure that we push on those things that are important to families. And we won’t get everything done all at once, but we can get a lot done. So that's point number one.
With respect to the budget, what I’ve done is to make a case to the American people that we have to make sure that we have a balanced approach to deficit reduction, but that deficit reduction alone is not an economic policy. And part of the challenge that we’ve had here is that not only Congress, but I think Washington generally spends all its time together about deficits and doesn't spend a lot of time talking about how do we create jobs. So I want to make sure that we're talking about both.
I think that, for example, we could put a lot of people back to work right now rebuilding our roads and bridges. And this is deferred maintenance. We know we're going to have to do it. And I went to a bridge that connects Mitch McConnell's state to John Boehner's state, and it was a rotten bridge and everybody knows it. And I'll bet they really want to see that improved. Well, how do we do it? Let's have a conversation about it. That will create jobs. It will be good for businesses, reduce commuter times, improve commuter safety. That has to be part of this conversation, not just this constant argument about cutting and spending.
So I guess my point is, Ari, that what I want to try to do is to make sure that we're constantly focused, that our true north is on how are we helping American families succeed. Deficit reduction is part of that agenda and an important part. But it's not the only part. And I don't want us to be paralyzed on everything just because we disagree on this one thing.
And as I already said to Jessica, what I'm also hoping is, is that, over time -- perhaps after Republicans step back and maybe they can say, you know what, we stuck tough on the sequester, and this makes us feel good, and the Republican caucus is in a better mood when they come back -- maybe then we can have a more serious discussion about what the real problems on deficit and deficit reduction are.
And the good thing about America is that sometimes we get to these bottlenecks and we get stuck, and you have these sharp, partisan fights, but the American people pretty steadily are common sense and practical, and eventually, that common-sense, practical approach wins out. And I think that's what will happen here as well.
And, in the meantime, just to make the final point about the sequester, we will get through this. This is not going to be a apocalypse, I think as some people have said. It's just dumb. And it's going to hurt. It's going to hurt individual people and it's going to hurt the economy overall.
But if Congress comes to its senses a week from now, a month from now, three months from now, then there's a lot of open running room there for us to grow our economy much more quickly and to advance the agenda of the American people dramatically. So this is a temporary stop on what I believe is the long-term, outstanding prospect for American growth and greatness.
Thank you very much.
END
12:14 P.M. EST

James S. Brady Press Briefing Room
12:56 P.M. EST
MR. CARNEY: Good afternoon, ladies and gentlemen. Thanks for being here. A couple of things I want to bring to your attention before I take your questions.
First of all, you should have seen moments ago a statement from the President on the House passage of the Violence Against Women Act. The President says in this statement:
“I was pleased to see the House of Representatives come together and vote to reauthorize and strengthen the Violence Against Women Act. Over more than two decades, this law has saved countless lives and transformed the way we treat victims of abuse. Today’s vote will go even further by continuing to reduce domestic violence, improving how we treat victims of rape, and extending protections to Native American women and members of the LGBT community.
The bill also reauthorizes the Trafficking Victims Protection Act, providing critical support for both international and domestic victims of trafficking, and helping ensure traffickers are brought to justice.
I want to thank leaders from both parties, especially Leader Pelosi, Congresswomen Gwen Moore and Senator Leahy, for everything they’ve done to make this happen. Renewing this bill was an important step towards making sure no one in America is forced to live in fear. And I look forward to signing it into law as soon as it hits my desk.”
I would note that the vote in the House was bipartisan, substantially. It was 286 to 138. That included 199 Democratic yes votes, 0 Democratic no votes; 87 Republican yes votes, 138 Republican no votes.
Secondly, I’d like to mention the Republican bill in the Senate that supposedly would provide flexibility on how to deal with or implement the sequester. We have put out a statement of administration policy on this, and I think you will note that we believe no amount of flexibility changes the fact that these severe cuts threaten thousands of middle-class jobs and slash vital services for children, seniors and our troops and military families.
There is no way to cut spending this dramatically over a seven-month period without drastically affecting national security and economic priorities. The Republican proposal is the worst of all worlds. It explicitly protects pork-barrel projects and every single tax loophole that benefits the wealthy, but puts on the table cuts to things like Medicare and education, forcing middle-class families to bear the burden while asking nothing from the wealthiest Americans. This doesn’t solve the problem; it makes the problem worse.
This bill is an effort to shift the focus away from the need for the Congress to work toward a bipartisan compromise that would avoid sequestration. The Congress must act responsibly to avert sequestration through balanced deficit reduction, and stop endangering the nation's economic recovery.
With that, I'll go to the Associated Press.
Q Thanks, Jay. This meeting with congressional leaders tomorrow, is this a meeting to focus solely on dealing with the sequester? Or does the focus turn now to a bigger deal to deal with the spending cuts, but also some of these other deadlines with the CR and with debt ceiling issues?
MR. CARNEY: That's a very good question, Josh. Two things I would say. First of all, the Senate will vote on the proposal put forward by Democrats that would deal with the sequester, postpone the sequester in a balanced, responsible way. We expect that that bill will get majority support in the Senate. The only reason why it might not pass the Senate is because a minority of Republicans, led by the Republican leader, would filibuster that bill -- a pretty stark indication of the state of things when a bill that has majority support is blocked by a minority, when that bill would avert the problem that we have confronting us with this imminent deadline.
So we'll have to see what the Senate actually does, whether Republicans filibuster this bill. That has not happened yet. Maybe they'll have a change of heart. And that will obviously affect the topics of conversation tomorrow in the meeting with the President.
The President believes we need to come together and deal with the sequester. And the sequester is just one piece of the broader challenge here, which is reducing our deficit in a balanced way. That's what the sequester was part of when it was included in the Budget Control Act. And it was designed as policy that would never come into effect because it was so onerous for both sides. It would compel Congress to reach a compromise that reduced our deficit by a further $1.2 trillion.
The President, as you know, has put forward a proposal that is balanced, that works on -- that continues the progress that we've made in deficit reduction, $2.5 trillion thus far, more than two dollars in spending cuts for every dollar in revenue represented in that $2.5 trillion of deficit reduction -- the kind of balance that tilts toward spending cuts that this President has put on the table, the kind of balance that we haven’t seen, unfortunately, from Republicans.
But he hopes that -- whether it is action by Republicans to deal with the sequester in the short term in a balanced way, or to take up the project of a bigger deal and more deficit reduction that helps us reach that $4 trillion goal, he will be hoping that Republicans, whether it's the short term or the long term, are ready to talk seriously about compromise and making sure that Washington is not inflicting wounds on the economy right when the economy should be growing and creating jobs.
Q Well, is there anything that's off the table for tomorrow? Were there any preconditions from either the President or from Republicans in terms of taxes or things that are not to be part of what's asked for tomorrow?
MR. CARNEY: Well, no, there are no preconditions to a meeting like this. This is a meeting with the President and leaders of Congress, both parties. And obviously, any topic is up for discussion if one member of the group decides he or she wants to broach it. The immediate purpose of the meeting is to talk about the imminent sequester deadline and the need to avert it -- the need, if it is implemented, to take action in a balanced way to deal with our deficit reduction in a way that doesn’t unduly burden seniors, or middle-class families, or parents of children with disabilities, that asks everyone to bear the burden, and that by doing that, allows our economy to continue to grow, to continue the recovery that we've seen underway now for three years, but that still has a long way to go.
So the President is firm in his conviction that we need to include balance in our deficit reduction. It is unacceptable, it is a “my way or the highway” approach to say that revenues shouldn't be part of it -- because as it's true of the proposal Republicans in the Senate are putting forward today, what's true about that proposal is true with the general Republican position, which is that they would rather see sequester take effect with its job loss, with its negative effect on economic growth, than ask a single wealthy individual to pay a little bit more, to give up a special tax break, to ask some big corporations or industries to forego their loopholes or limit their deductions. And that's just not a position that is sustainable, we believe, and it's not fair to the American people.
Q On another topic, today is the deadline for the administration to file an amicus brief if it chooses to do so in the Prop 8 case before the Supreme Court. Will the administration be filing a brief in that case?
MR. CARNEY: As I've said in the past, decisions about filing briefs are legal and constitutional matters, so best to address those questions to the Department of Justice.
Q Just going back to what you were saying earlier, why is the President so concerned about closing loopholes now when six weeks ago as part of the fiscal cliff deal, he was very interested in agreeing to sign into law loopholes that protected certain industries like the wind industry and NASCAR and films?
MR. CARNEY: Well, a couple of things. One, as part of the end-of-the-year negotiations, we were focused, as were the Republicans, on the imminent prospect of taxes going up on middle-class Americans. And that had to be resolved and was resolved. We were also focused on the need to return the top marginal rate to the level it was under President Clinton, 39.6, for the wealthiest Americans, and that was achieved. And that produces now in the 10-year window a certain amount of revenue toward deficit reduction. That's obviously a positive development.
The fact is the loopholes that we have identified are similar to some of the ones that John Boehner, the Speaker of the House, has identified as worthy of closing, as not good for our tax code, not good for economic fairness. And those are the ones we believe should be closed.
And additionally, in our proposal to the Speaker of the House we’ve put forward a provision that would cap deductions at 28 percent for millionaires and billionaires -- that would produce a certain amount of revenue -- and the combination would achieve the level necessary of revenue as part of an overall deficit-reduction package that includes savings from entitlements that would complete the job of getting $4 trillion-plus in deficit reduction over 10 years.
The fact of the matter is that proposal that the President made to Speaker Boehner, which everyone here I think, or most people here recognized as an effort by the President to compromise, to make tough choices for Democrats, is still on the table. And we hope that the Speaker would consider taking up that proposal, because just -- I think it was yesterday or the day before -- the Speaker talked about how he believes we could and should reform the tax code. The fundamental difference here now seems to be not that we shouldn’t close loopholes and cap deductions for the wealthiest individuals and corporations that are given special treatment in the tax code -- the Speaker seems to agree with that. The disagreement here now seems to be that he believes that the savings from that action, the savings from closing those loopholes, should be funneled back to the wealthiest individuals in tax cuts.
We believe adopting a conservative position that that savings should be applied to deficit reduction, and thereby by applying that savings to deficit reduction we’re not asking seniors and middle-class families to bear the burden of deficit reduction all by themselves -- and that's a pretty conservative position. That's a pretty reasonable, middle-of-the-road, common-sense approach to both tax reform and entitlement reform.
Q But on the specific issue of tax loopholes and allowing -- or agreeing to continue some but now saying these other ones are bad, is there any contradiction that you have to square your messaging on that?
MR. CARNEY: No, I don't think -- if you’re asking me is the wind energy tax credit that helps support thousands of jobs and, importantly, contributes to the development and growth of clean energy technologies in this country, so the jobs in those industries are created in this country, I would say absolutely yes. And a number of Republicans agree with us.
If you ask me if an industry -- we’re talking about clean energy, energy jobs of the future -- if you’re asking if subsidies that have been in effect for 100 years for the oil and gas industry, taxpayer subsidies given to an industry that is doing quite well, as everyone here who has filled up their tank recently can attest, whether those subsidies and special tax breaks should be continued, the answer is no. They're bad policy.
That's something that actually Ronald Reagan agrees with. He said numerous times he had proposed to close that special tax break and loophole for the oil and gas industry back in 1985 when he thought at the time that the need for that subsidization of the oil and gas industry had run its course. And that was almost 30 years ago.
Q Just on Syria briefly, is the U.S. government helping in any way to train Syrian opposition rebels?
MR. CARNEY: I think you saw Secretary Kerry announce an increase in our assistance to the opposition, the Syrian Opposition Coalition, in Rome today. He stood with our partners in that coalition and reaffirmed the commitment of President Obama to help the Syrian people transition to a Democratic inclusive and peaceful Syria.
Bashar al-Assad has lost all legitimacy and must go. We stand united with the Syrian people on this, and we will continue to offer support to the Syrian opposition even as other countries choose to make it possible for Assad to continue his violent campaign against his own people.
Secretary Kerry announced today that to translate our support into tangible assistance, we will provide an additional $60 million in nonlethal support to the Coalition’s operational needs. That comes on top of $50 million already provided in nonlethal assistance to the opposition, and is separate from the $385 million in humanitarian assistance that we have been providing to the Syrian population.
Q Jay?
MR. CARNEY: Yes, Major.
Q I’ll get to sequester in a minute. I just wondered if the President took note yesterday at all of the oral arguments before the Supreme Court on the Voting Rights Act, if he was briefed on it, has any particular reaction to it. It could be described in many ways, but lively would be one way to describe it.
MR. CARNEY: I haven’t spoken with him about it. I know that White House Counsel Kathy Ruemmler was in attendance, but I have not spoken with the President so I don't have a reaction from him on those arguments. I will say that while I can't comment on specific litigation -- and for comment on that, I would refer you to the Department of Justice -- I can say that it is the President’s position and the White House position that voting is a basic democratic right. And the reauthorization of the Voting Rights Act itself passed with bipartisan support in Congress and was signed into law by President Bush just seven years ago.
The protections offered in the Voting Rights Act have been critical to reducing discrimination in voting in the more than four decades since the law was first passed, and continue to play an important role. As the President has said, “We must remain vigilant in guaranteeing access to the ballot box.”
Q On the sequester issues, when will the President’s budget be sent to the Congress, and why is it so far behind schedule?
MR. CARNEY: Well, we’ve addressed this question in the past. I don't have a date --
Q There’s word of a new delay. That's the reason I’m bringing it up.
MR. CARNEY: Well, I don't know about that. I don't have a date certain. I don't think we’ve provided a date certain for when the budget will be put forward, but I think it will be in March.
Q And is sequester complicating it?
MR. CARNEY: I think that the series of manufactured crises around budget issues certainly has resulted at least in part in those experts in the administration who work on those issues being -- having to spend a lot of time dealing with those crises rather than on that. But that’s part of the job, and they’re working on the budget.
Q The Education Secretary was here yesterday. He said some things that didn’t prove to be true about the immediacy of pink slips for teachers. He mentioned a specific school district in West Virginia. They’re not sequester-related at all. He made some sort of mild -- suggested that they might not be. They’re clearly not. How confident are you, Jay, and confident is this administration that the things it’s saying and the portrait it is presenting to the country is not only accurate but will stand the scrutiny of time once these cuts begin?
MR. CARNEY: Well, we’re very confident --
Q Because it’s not the first time that there was a note of exaggeration or factual inaccuracy.
MR. CARNEY: Oh, really? Because if you want to provide other examples, I’d take them.
Q The FAA can’t explain definitively there will be 90-minute delays. That’s another example.
MR. CARNEY: Well, I don’t know that the Secretary of Transportation was giving you an absolute minute target for how much the delays will be. If there are going to be delays as a result of reduction in man-hours and personnel among our air traffic controllers, that’s a fact. And I hope you keep that in mind when you’re on your next commercial flight and you’re delayed, if that does in fact come into effect with the sequester.
I would refer you to the Department of Education and to the superintendent of schools in the district that you mentioned for specifics about that. I’m certainly not familiar with it. I can tell you that the impacts of sequester are real, and to diminish them --
Q But you're familiar with that example -- it’s wrong. That was wrong.
MR. CARNEY: Well, I’m unfamiliar of the example. I would refer you to the Department of Education and to the superintendent of the school district for more information about it. I don’t have it. What I can tell you is that --
Q Jay, it came from your podium, right? You guys said that. You guys made the statement.
Q It was in this room, and --
MR. CARNEY: I’m just saying I don’t have any -- I am not personally in contact with individual school districts --
Q So you’re asserting something and you’re asking us to check with a local school affiliate on whether or not --
MR. CARNEY: No, no, Hans. Let me rewind the tape where I said I would refer you to the Department of Education, which is here in Washington, D.C., not a local school district, for more information.
Q You also referred us to the district.
MR. CARNEY: Well, obviously, the school district is a good place to go for information about the school district.
Q But they said the information said at that podium was false, it was wrong. So I’m asking you to acknowledge that.
MR. CARNEY: Jon, I don’t have any more for you in it. I welcome -- I encourage you to make phone calls in the old-fashioned reporting sense to find out more if you like. I don’t have anything more for you on it.
The fact is the effects of sequester will be real if it takes place, beginning tomorrow night. In Ohio -- Ohio will lose approximately $25.1 million in funding for primary and secondary education, putting around 350 teacher and aide jobs at risk. In addition, about 34,000 fewer students would be served, and approximately 100 fewer schools would receive funding. If you don’t think that’s real -- if this happens, you should go out to Ohio and ask the families that are affected if they think it’s real.
California will lose about $3.3 million in funding for jobs search assistance, referral, and placement -- meaning around 129,770 fewer people will get the help and skills they need to find employment. If you don’t think that the effects of sequester are real, if sequester takes place, after a few weeks, fly to California, go to a jobs assistance placement office, find the people who aren’t getting served, and ask them if they think it’s real.
Ask the family whose child will not have a slot in Head Start whether they think it’s real. Ask the civilian Defense Department employee, who’s already gotten a notification that he or she will --
Q But even the President has said that --
MR. CARNEY: Jessica, let me finish -- that he or she will be furloughed, whether that has a real impact. They might lose 10 or 20 percent of their pay for the month or the year -- whether that has a real impact on their family budget. I think to suggest otherwise is --
Q No one in this room suggested otherwise. I asked you about what the Education Secretary said --
MR. CARNEY: And I’m saying for more information about that you should go to the Department of Education. What I’m saying is you’re using an example -- again, I don’t have details on it -- to suggest that the whole argument --
Q I asked you about it. I just asked you.
MR. CARNEY: Right, again, let’s rewind the tape, because what you said after that was, do you think -- using this as an example -- that we’re exaggerating the effects of sequester. And I just gave you concrete examples of what’s going to happen. Those are real people with real impacts. And I think they wonder, when they sit around their kitchen tables, why Washington can’t compromise, and in this case, because compromise represents willingness to accept policies that aren’t 100 percent of what you want. The President has done that again and again. Unfortunately, Republicans seem to be unwilling to do that when it comes to sequester, so the sequester may take place with the effects that we’ve talked about.
Q Even the President said last night, economists say this is not a cliff, it’s a tumble downward. It’s conceivable in the first few weeks, the first month, that a lot of people may not notice the full impact of the sequester.
MR. CARNEY: Sure.
Q Is he concerned that you’ve overstated the impact of it initially and he’s trying to dial it back?
MR. CARNEY: It’s our responsibility to be upfront about the fact that you cannot responsibly cut $85 billion out of the budget in seven months without having -- in the way that the law is designed without having dramatic effects on the defense industry and civilian workers, on our national security readiness, on teachers, on kids in Head Start. That's just a fact. It’s also a --
Q It’s a markedly different tone from the tone that, for example, was in what the Attorney General said when he says, this is going to have an impact on the safety of this country, and anyone who says otherwise is lying.
MR. CARNEY: But that's -- if you reduce the number of border security guards, that has an impact on our safety. If you are forced because of the sequester to change our military readiness posture, that has an effect on our safety.
I think the reporters are the ones who are suggesting that we -- that all of this was going to happen the stroke after midnight when the sequester goes into effect. We've never said that. We've always been clear about when you talk about -- furloughs, notices go out; once you receive a notice there’s always a 30-day warning before the furloughs actually begin.
We've been very clear about the different impacts. When Arne Duncan was here yesterday, Secretary of Education, he made clear that a lot of the actual effects in the education world won't be felt concretely until the fall because that's when the new school year begins. There are some specific areas like school districts outside of military bases or on Indian reservations that will feel the impact immediately because they’ll be forced by the nature of their grants to cut their budgets for this school year.
We've been very clear. What the President said last night is -- and I think what other people have said -- is that this will be a rolling impact, an effect that will build and build and build. And as the CBO has said, and as outside economic organizations have said, we'll see a contraction in the amount of GDP growth -- reduction in the amount of GDP growth by a full half of a percent or more. And we'll see up to 750,000 jobs lost. That's the CBO. That's Moody’s and Macroeconomics Advisors. So that's real. At least we agree with those assessments. And it affects real people.
Q On a different topic, at last year’s White House Correspondents Dinner, the President said he values a free press that is not afraid to ask questions, to examine and to criticize. Has he ever spoken to his aides about the tone he’d like them to take, you all to take, when talking to the press?
MR. CARNEY: Look, I think the President expects us to fully explain his policies, to answer questions about his positions, and to make clear when we believe factual errors are being stated, which is what we do. And look, I think as anyone who has done this from either side of this podium can tell you, these are about real issues. These are about the concrete effects of policy on people’s lives, on our national security, on our children’s future. And everybody who’s involved in these issues feels passionately about them. But we are enormously respectful of the work that you do, that I used to do, and we also believe it’s important for us to make clear when we think, as we have in the past, somebody is out there getting the facts wrong.
Q So when Gene Sperling told Bob Woodward that he might regret his reporting, what was intended by that?
MR. CARNEY: Jessica, don't you think it would be a responsible thing to ask that question in the context of the full email since we know what the full email said, where Gene Sperling, in keeping with a demeanor I have been familiar with for more than 20 years, was incredibly respectful, referred to Mr. Woodward as his friend, and apologized for raising his voice? I think you cannot read those emails and come away with the impression that Gene was threatening anybody, as I think others have observed.
The point, though -- I wish that reporters would pay attention to the policy substance of that email because the point that Gene was making is a point that I've made and others have made and the President has made. This is really important policy, and one thing that is absolutely irrefutable is that the President, from day one of signing the Budget Control Act, has been absolutely clear that in dealing with deficit reduction going forward and in replacing and eliminating the sequester, he believed we had to have balance. You’d have to have your head in the sand not to know that. Everybody here has reported it ad nauseam. So I think that's the fact that Gene was concerned with. That’s the fact that we're all concerned with.
Q I'll stop after this, I promise. But as you’ve remarked, you're in a unique position because you’ve been on both sides of a reporter-source relationship. Any regret about the erosion of trust between sources and reporters? Does it hurt the public?
MR. CARNEY: Well, look, I think that I've seen this play out before in both White Houses I've covered previously. I think we've talked about this just in recent weeks where the naturally adversarial relationship between the press corps and any administration, any White House, means that you guys, appropriately, are always demanding more information and holding our feet to the fire. That's absolutely how it should be. You go out and you report everything you can find about what we're doing and what Congress is doing and what the agencies are doing. And we get out there and try to explain the President’s positions and articulate why we think his positions are the right positions, and contest assertions to the contrary.
‘Twas ever thus. And it was certainly that way when I got here and covered the Clinton White House, and when I was covering the Bush White House. And I don't think it’s any different now. In fact, I would suggest that the atmosphere in this room was a lot more tense when I got here in 1993 than it is today.
Q Jay, when you were just telling Jessica that the tone of that email from Gene Sperling was respectful -- last night on Twitter, David Plouffe, who very recently was a very senior advisor inside this White House, put out a tweet that was basically comparing Bob Woodward to an aging baseball player who has sort of lost his talent, and sort of belittled him. Do you think that's respectful? Is that something the White House also supports?
MR. CARNEY: Ed, the fact of the matter is there was an accusation that Gene had been threatening. And as I think everybody who knows Gene knows, that's hard to believe. So, one. Two, Gene has been working on these issues all his life. He is very passionate about them. He works 20 hours a day, often, on behalf of the American people and this President to try to advance an economic agenda that helps middle-class Americans, average Americans. And he'll continue to do that.
Look, I have enormous respect for the work that Bob Woodward is famous for. I think a lot of us probably got into the business in part because we read “All The President’s Men” or we saw the movie, or both. But we had a factual disagreement that I think we stand by, which is that the President was very clear from the beginning that he would push balanced deficit reduction. I mean, how can that be a mystery? That's been his position since the day he signed the Budget Control Act. It was even the position that various Republicans adopted in trying to eliminate the sequester. So the phrase, “moving the goalposts” is not one we agree with. But that's it, really. It’s just a disagreement about the facts.
Q Okay, so we're concerned about the facts in this debate about the sequester. In the back-and-forth just here about Arne Duncan, are you acknowledging from this podium now, though, that some of the things he said yesterday were not true?
MR. CARNEY: Again, I haven't independently looked into them, so I can't really --
Q How can the public believe what you're saying day in, day out, about flight towers and everything else if you're not checking it out?
MR. CARNEY: Well, again, I had the Secretary of Transportation come up here and talk about the impacts on the FAA, the Secretary of Education talk about the impacts on areas of his budget. And that's because they’re the experts in those fields. And I had the Secretary of Homeland Security talk about the effects on her areas of responsibility. So we do that because they know the most and the most in depth about those areas. So when you want an answer to a specific question I think you ought to take it to them.
I think the broader point, setting aside that issue, was I think strongly made, which is that there will be substantial effects on school districts around the country, on budgets to help poor children and budgets to help disabled kids, which are, as Secretary Duncan described, two of the biggest portions of his budget and that will unavoidably be affected when sequester is implemented.
So, again, those are real people out there who will suffer if sequester goes into effect and stays into effect for a substantial period of time.
Q On a specific, substantive point, yesterday when you were asked about the ICE Agency releasing detainees apparently because of budget cuts around sequester, you had said that the White House did not intervene beforehand. There’s been some reporting overnight that perhaps ICE is rethinking this, and I wonder has the White House since yesterday’s briefing intervened with ICE and said this is not a good idea?
MR. CARNEY: Not that I’m aware of. Again, this was a decision made by career officials at ICE without any input from the White House as a result of fiscal uncertainty over the continuing resolution and possible sequestration. I have no more information today about it than I did yesterday.
Q Okay, last thing on -- when you were talking about the relationship with press -- today Secretary Lew was just sworn in as the Treasury Secretary. You didn’t let cameras or the press pool in. Why not?
MR. CARNEY: Well, it was a private ceremony with members of his family, including grandchildren. As you know, now Secretary Lew has served President Obama in four positions -- this is his fourth. And he and the President have become close through their service together and the President wanted to have this ceremony for Secretary Lew in the Oval Office because of that relationship.
Q Okay, just the last thing on that, though. The AP reported in January of 2009 that the last Treasury Secretary, Tim Geithner, who I assume had his family there as well, was sworn in by the Vice President and the President was there, and actually made remarks about the financial crisis and said that we need to get our team in place. Right now there’s a budget crisis that you’ve been talking about from this podium every day. Why wouldn’t the President open it up to TV cameras and say --
MR. CARNEY: Well, again, it was a ceremony, Ed, a family ceremony. The President has addressed the looming sequester challenge as recently as last night. He took questions on it from you guys less than a week ago on Friday. I’m sure he’ll be talking with you about it in the future and making remarks about it in the future. Granted it’s not as important as who he’s playing golf with, but he will be talking about this very important policy issue and engaging with you on it in the future.
Mara.
Q You said earlier that you’re going to be forced to cut security guards and that’s because of the nature of the sequester -- it forces you to go down to the deepest level of government activity and then make the across-the-board cuts. Why not accept flexibility so you wouldn’t have to do that?
MR. CARNEY: Well, as I said at the top, no amount of flexibility changes the fact that these severe cuts threaten thousands of middle-class jobs and slash vital services for children, seniors, and our troops and military families. You can’t -- $85 billion, as we’ve had economic officials talk to you about and Cabinet Secretaries talk to you about -- there is no way to mitigate the damage that cuts made that deeply and that swiftly in the budgets identified go away.
Q But it wouldn't have cut security guards. It would force you to make a choice.
MR. CARNEY: Mara, I’m not sure if you were here when Homeland Security Secretary Napolitano was here and explained how that’s not the case. And in these personnel-intensive agencies when you’re forced to deal with the kinds of cuts envisioned here, you have to apply them to personnel through furloughs and the like, or reduce man-hours.
You cannot -- that’s the problem. The Fed Chairman made clear that no changing of the nature of the $85 billion in cuts would change the effect on the economy, which he described as negative, in talking about the effect on our fiscal situation.
The best way to go about this is to postpone the sequester or agree to a bigger deal that eliminates it entirely in a balanced way -- in a way that doesn’t ask seniors, or the border security guards, or middle-class families who depend on important services for disabled kids or help sending their kids to college -- if you ask them to bear the burden of this deficit reduction, the burden is onerous.
If you spread out the burden and ask wealthy individuals, who enjoy advantages in the tax code that average Americans don’t, to give up those advantages, if you ask industries and corporations that have special exceptions written into the tax code because they have really good lobbyists here in Washington to give up those special exceptions and exemptions, you can spread the burden and make it less onerous on regular folks. And that’s the approach the President believes is the right way to go.
Q I just have one question about Arne Duncan. Wait, can I just finish with one last question about Arne Duncan? Are you in essence saying that one inaccurate example should not undercut your larger argument about the overall --
MR. CARNEY: I’m saying that I don’t know the specifics about this example, but I’m certainly saying that the larger argument remains true. There’s just -- it’s irrefutable. It’s been attested to by Republicans who, until they changed their political strategy, were shouting from the rooftops about the terrible effects of sequester. You guys reported on it --
Q You're asking for some forbearance on the specific examples.
MR. CARNEY: Again, I don’t know the specifics so I’m not even sure I’m asking for forbearance. I’m just saying I don’t know the specifics.
Christi.
Q Jay, thank you. I know you want to leave questions about the Prop 8 brief to the DOJ, but as the President’s spokesman, I wonder if you could just tell us a little bit about his deliberations on this.
MR. CARNEY: I really don’t have anything for you on it. The President obviously has expressed an opinion in the past on this issue as a matter of policy. But when it comes to legal and constitutional issues around it, that’s a jurisdiction that resides at the Department of Justice. So I don’t have anything for you on it.
Q A decision about whether to weigh in wouldn’t be a policy decision made by the President?
MR. CARNEY: I just don’t have anything more for you on it. I would refer you to the DOJ.
Jon.
Q Jay, just the bottom line on these questions about the sequester. What’s it going to be like tomorrow? I mean, this thing is going to happen barring a legislative miracle. It’s going to happen tomorrow, so what are we going to see?
MR. CARNEY: Well, it will happen Saturday.
Q Well, it will happen tomorrow at 11:59 p.m. So what happens at 11:59 p.m. tomorrow?
MR. CARNEY: I think we’ve been very clear about various areas where these cuts once implemented will go into effect and the impacts they will have. Not all of them will be felt immediately, as I think we’ve been clear about -- Secretary Duncan, the President, others -- but there will be immediate effects. And if you doubt that, how do you --
Q -- immediate effects --
MR. CARNEY: Okay, well, let's talk about GDP, which was, granted, revised upwards two-tenths of a percent for the fourth quarter. But it was as low a figure as we got, as every outside economist will tell you, because of the reduction -- in part because of the reduction in defense spending -- a historic 40-year low or drop -- in anticipation of the sequester.
We saw it again yesterday, I believe it was, in the durable goods figures that showed almost all of the drop in durable goods attributable to defense sector reductions in spending, reductions and orders made by defense industry companies because of sequester. These have real effects on business and on jobs. And we will see it when -- we've seen it already from the notices that have gone out warning people that furlough notices will be forthcoming if sequester goes into effect.
Now, I believe that if you're a middle-class family and the father or mother in that family gets a notice in a couple of days, or has gotten a notice already, that he or she will be getting a furlough notice and that that furlough will take effect in 30 days, that doesn't have an impact on your family in 30 days. It has an impact on your family right now, as you begin to contemplate life with less money to make the ends meet.
And that's just -- these are real consequences. There will be families that get notices that there's not a slot anymore for their child in Head Start. And there will be families that have to deal with reduced hours if a father or mother is a border security guard or an air traffic controller. These are real-world impacts. They don't all happen on Saturday; it's a gradual process. But the cumulative impact of sequester will be significant to our economy and particularly so to the individuals affected.
Q So what do you say to Mayor Bloomberg, who stood right over there yesterday and was asked about the warnings that have come out of the White House, and he said there's a lot of posturing. "Spare me, I live in that world. I mean, come on, let's get serious here." He was very dismissive of these warnings. Is Mayor Bloomberg just wrong about it?
MR. CARNEY: I wasn't there. I didn’t hear what he had to say.
Q That's what he said.
MR. CARNEY: Different cities and regions and states will have different effects, depending on what kind of funding they get in the affected areas from the federal government. I can't speak to what the impacts will be on New York City. But there will be real-world impacts.
And it is I think just a fact that if you're at the receiving end of a notice that you're going to be furloughed or you're going to be laid off, that's nothing small. That's huge. And the people who get those notices will have Washington to blame -- in particular, unfortunately, the intransigence, the refusal to compromise and to do something reasonable and balanced that we've seen on Capitol Hill.
Q Just one quick follow-up on the Woodward thing. Another longtime, respected Washington journalist, Ron Fournier, came out and talked about Woodward, and he said that -- he talked about his own story about how he’s received many what he called “vulgar and abusive” emails and phone calls from White House officials. I mean, have you ever heard of anything like that?
MR. CARNEY: I've been on the receiving end of a few in previous White Houses and I think -- it certainly didn't trouble me too much. And I don't have any specific comment on that.
Q Is it just whining by the --
MR. CARNEY: I think this is a situation where people feel passionately about the policies that the President has and that previous Presidents have put forward. And my predecessors and others felt the same way, I'm sure. And reporters are under a great deal of competitive pressure not just to get scoops, but also to have the most noticed opinion or observation. And there are going to be disagreements about whether those facts or opinions or observations are on the mark. I think it should be that way.
I never took it personally when my former boss here, Rahm Emanuel, back when I was a reporter, would get on the phone and give me an earful about something he didn't like. It didn't affect my relationship with him and it didn't stop me from talking to him. I just happened to know that was Rahm's way. And that was true in the Bush White House, not just the Clinton White House.
Q It won’t affect our relationship with you either, Jay.
MR. CARNEY: Thanks, Ed.
Q Jay, would the White House concede in some form that this was a miscalculation to put forward the sequester as a forcing mechanism now that we're on the eve of it going into effect?
MR. CARNEY: I feel like this is Groundhog Day. Let's go back to --
Q But without relitigating the details, you guys played a part in some capacity of it -- the President or Jack Lew, Arne Duncan --
MR. CARNEY: I think it's unfortunate that Republicans who, again, shouted from the rooftops -- and I could read page and page and page of quotes from Republicans who said sequester should never become law, it would be the worst possible thing for our national security and other aspects of the government -- who now think that sequester is an effective political tool and they're perfectly happy with the consequences of sequester. They were right that sequester was designed purposely to be bad policy. It was designed that way and to be equally onerous for both Republicans and Democrats so that the prospect of its implementation would compel Congress to make tough choices.
Unfortunately, despite some -- going back to the argument about goalposts -- despite some proposals by some Republicans or at least suggestions that revenue be included in a package of deficit reduction that would eliminate the sequester and achieve our $4 trillion goal, Republicans in the end refused to do that, even though the President repeatedly put forward proposals that did that and continues to have a proposal on the table that does that.
So, yes, it’s unfortunate the sequester may come to pass, and we would simply point you to statements not just by Democrats or the President but by Republicans who warned about all the negative impacts of sequester and said we have to do something responsible to avoid it. And I think we’ve seen -- unfortunately, not from the leadership, but from a number of Republicans lately, including Senator Graham and Senator McCain and some House Republicans -- comments from them suggesting that it would be wise to close a few loopholes, or cap a few deductions, or eliminate some special breaks for corporations as part of a deficit reduction package to avoid sequester.
Q But given the intransigence and the impact that you’ve indicated in this conversation with us earlier today, is there no Plan B? Is the sequester preferable to anything without tax cuts of some form?
MR. CARNEY: I think you’ve seen numerous economists, as well as the Chairman of the Fed, say $85 billion, you can't wish away the negative effects that that will have on our economy if it comes all in cuts in the way that it’s fashioned.
The way to deal with this responsibly is to balance it with revenues gained from tax reform, closing loopholes, eliminating special tax breaks for industries that no longer need them and maybe never did, and asking millionaires and billionaires to carry some of the burden. Again, that's a proposition that the American people overwhelmingly support.
Peter.
Q Thank you, Jay. So tomorrow we’re seeing a meeting between the President and congressional leaders on the sequester. Does this usher in sort of a new phase where we’ll see more direct face-to-face negotiations among the parties to try to resolve this? Or would you expect to see the President may still go out on the road, make his case to the general public? Or do you think we’ll be seeing more --
MR. CARNEY: It’s not an either -- it never has been and it will not be an either-or proposition, as we’ve said for a long time now. The President will continue to travel around the country and talk about the issues that he thinks are important and the priorities that he’s put forward in his agenda. The suggestion that that's a bad thing to do I think implies that Republicans who criticize the President for talking about sequester with the American people don't want the American people to know about what's really happening here, which is not an approach we take.
He will obviously continue to engage with Congress, as he has in the past, as he will tomorrow -- both congressional leaders and rank-and-file members of both the Senate and the House -- in an effort to try to resolve this. We have an opportunity here still on the table for Congress to take up a balanced deal that would complete the job and then some of achieving more than $4 trillion of deficit reduction over 10 years, in a balanced way that helps our economy grow, that helps it create jobs.
Q Can I change topic just for a second?
MR. CARNEY: Really, do you have to? (Laughter.)
Q Why not? Why not? In the midst of all this, has the President had an opportunity to sit down with your team, the national security team, to talk about what his message will be almost in two weeks when he goes to the Middle East?
MR. CARNEY: I don't have any preview of that trip to give to you beyond what we've said already, which the President very much looks forward to it. The timing is good. He believes as he begins his second term and as there's a new government coming into place in Israel, he very much looks forward to the trip both to Israel and Jordan and to Ramallah, the West Bank.
Peter, last one.
Q Thanks. What is your understanding of how and when this thing is going to kick in tomorrow? Some people on the Hill think that it's 12:01 a.m. tomorrow morning. You mentioned 11:59 p.m. There's also wording out there that the President has to sign --
MR. CARNEY: My understanding -- and I'm a layman in this, but my understanding is that the law has a provision that requires the President to order the sequester on March 1st, which is tomorrow. And that means that it has to be done by 11:59 p.m. tomorrow.
Q Will he wait that long?
Q Will he do it beforehand or will he wait --
MR. CARNEY: -- 11:59 and 59 seconds, because he's ever hopeful. No, I don't know what time tomorrow.
Q Will you let us know when it's signed?
MR. CARNEY: I think we will, yes.
Q Do you not know?
MR. CARNEY: I do not know.
Q It won't be during the meeting? (Laughter.)
MR. CARNEY: I wouldn't expect that. We haven't made a schedule yet for tomorrow.
Q What’s the coverage on the meeting?
MR. CARNEY: I think it will be a private meeting, try to get something done.
Q Is the President going to come out and speak publicly to the nation at some point?
MR. CARNEY: I don't have any scheduling announcements.
Thanks.
END
1:42 P.M. EST

In many Western industrialized nations, debt has overwhelmed or is about to overwhelm the economy's debt-servicing capacity. In the run-up to a debt crisis, bad debt tends to move to the next higher level and may ultimately accumulate in the central bank's balance sheet, provided the economy has its own currency. The process whereby government or quasi-government debt is taken over by the central bank is called quantitative easing. Many observers assume that, once bad debt is purchased by the central bank, the debt crisis is solved for good; that central banks have unlimited wealth at their disposal, or can print unlimited wealth into existence. However, central banks can only create liquidity, not wealth. If printing money were equivalent to creating wealth, then mankind would not have to get up early on Monday morning. QE just transfers losses from the previous holders of the asset to the central bank itself. Up to a certain amount, the central bank absorbs these losses by sacrificing its equity and accumulated profits. Losses exceeding the central bank's loss-absorption capacity necessarily lead to inflation. If the central bank's net worth turns significantly negative (as Bernanke discussed and dismissed today), hyperinflation may ensue and a vicious circle may be set in motion. Only a solvent central bank can halt hyperinflation. The longer governments run large deficits, the longer central banks continue to monetize them, and the longer their balance sheets grow, the higher the potential for enormous losses and thus hyperinflation. Necessary preconditions for hyperinflation are a quasi-bankrupt government whose debt is monetized by a central bank with insufficient assets. One way or another, owning physical gold is the safest and most effective way of insuring against hyperinflation. Authored by Caesar Lack of UBS, Gold - The Ultimate Balance Sheet Equalizer In many Western industrialized nations, debt has overwhelmed or is about to overwhelm the economy's debt-servicing capacity. In principle, debt is not a negative if incurred to finance sustainable investment, the profits of which can then be used to extinguish the debt. However, borrowed money has increasingly been mal-invested or spent on consumption in recent decades. Mal-investment impairs the productive capital stock, and the growing debt burden strangles economic growth even more. When financial markets realize that the emperor has no clothes and interest rates rise, the economy is exposed as insolvent, and a debt crisis follows. Bad debt ends up at the central bank In the run-up to a debt crisis, bad debt tends to move to the next higher level and may ultimately accumulate in the central bank's balance sheet, provided the economy has its own currency. Excessive debt incurred by consumers, homeowners and businesses first moves to the banking system and corrupts its balance sheet. If (rightly or wrongly) the banking system isn't allowed to fail, bad debt is then transferred to the government via bailouts or implicit / explicit guarantees. When exacerbated by the burden of unfavorable demographics and several decades of proliferating welfare spending, it may overwhelm the government's debt-carrying capacity. Should financial markets become unwilling to refinance the government debt at rates acceptable to the government, central banks step in. They monetize government debt in the name of propping up the economy, creating jobs, or weakening the currency to keep government borrowing rates low. The process whereby government or quasi-government debt is taken over by the central bank is called quantitative and qualitative easing: "quantitative" easing denotes the lengthening of the central bank balance sheet while "qualitative" easing denotes the deterioration of it. Central banks cannot create wealth, only liquidity Many observers assume that, once bad debt is purchased by the central bank, the debt crisis is solved for good. The implicit assumption is that central banks have unlimited wealth at their disposal, or can print unlimited wealth into existence. However, central banks can only create liquidity, not wealth. If printing money were equivalent to creating wealth, then mankind would not have to get up early on Monday morning. Quantitative easing just transfers losses from the previous holders of the assets purchased by the central bank to the central bank itself. Up to a certain amount, the central bank absorbs these losses by sacrificing its equity and accumulated profits. Losses exceeding the central bank's loss-absorption capacity necessarily lead to inflation. What is the loss-absorption capacity of central banks? The non-inflationary loss-absorption capacity of a central bank is limited. European central banks, with the exception of the Bank of England (BoE), regularly retained a share of their profits in the past. The Eurosystem currently discloses capital and provisions of EUR 493bn, equivalent to 17% of its balance sheet total and 5% of Eurozone GDP. The Swiss National Bank (SNB) discloses capital and provisions of CHF 62bn, equivalent to 12% of its balance sheet and 10% of Swiss GDP. The Bank of Japan (BoJ), the BoE and the US Fed, on the other hand, used to distribute most of their profits to their Treasuries. The BoJ discloses equity of just JPY 3.2trn, which is equivalent to only 2% of its balance sheet and less than 1% of GDP. And, finally, the US Fed and the BoE have no noteworthy equity or provisions at all. It has been argued that the central bank loss-absorption capacity consists not only of present equity and provisions but the discounted value of all future expected profits, and therefore central banks have a non-inflationary loss-absorption capacity much larger than their current equity and provisions. However, we think that incurring losses significantly beyond the banks' current equity and provisions may be dangerous and even pave the way to hyperinflation, as we will argue below. To be more precise, we think that the loss-absorption capacity of a central bank is the sum of the central bank's equity and provisions plus the monetary base – not the inflated monetary base of today, but the "normal" monetary base before the crisis. Why do we include the monetary base in the loss-absorption capacity? The returns on assets purchased or held in exchange for the monetary base constitute "seigniorage," i.e. central bank profits. Up to a negative equity equivalent to the monetary base, central banks turn structural profits. Only when negative equity exceeds the monetary base do central banks turn structural losses. In Western industrialized countries before the financial crisis, the monetary base usually amounted to 5%-10% of GDP. What if bad debt exceeds the loss-absorption capacity? What happens when losses transferred to the central bank exceed its loss-absorption capacity? They make it impossible for the central bank to withdraw all excess liquidity, and they ultimately cause inflation. Why? When engaging in quantitative easing, i.e. when purchasing assets, central banks create money. Over the long term, a loss in the purchasing power of the currency will occur if the new money is not disposed of in due time. Should a central bank suffer outsized losses, it may be unable to withdraw all of the excess liquidity it created during its asset-purchase programs. The amount it cannot withdraw due to a lack of assets determines the amount of inflation that will follow. There are basically three ways to withdraw excess liquidity. First, the central bank can sell assets and thus reduce the money supply for good. But if the central bank suffered large losses, it may not have enough assets to do so. Note also that the wholesale selling of assets will depress their price. Second, the central bank can immobilize excess liquidity by issuing bills, engaging in reverse repo operations or offering fixed-term deposits. However, such immobilizing requires the central bank to pay a sufficiently high interest rate to induce banks to park funds at it and not chase asset prices higher. If the central bank has considerable negative equity, interest payments on the funds deposited with it may exceed the returns its assets generate. The central bank may be faced then with structural losses that grow ever larger. Third, the central bank can raise minimum reserve requirements, i.e. require the banking system to hold more reserves. However, holding reserves is costly, and if the banking system is close to insolvency it cannot afford to do so, particularly if large amounts are involved. Only a solvent central bank can halt hyperinflation If the central bank's net worth turns significantly negative, hyperinflation may ensue. A vicious circle may be set in motion. Rising inflation and inflation expectations lead to an economic downturn, which creates growing government deficits and greater pressure to monetize them, which in turn results in higher costs to immobilize excess liquidity due to soaring interest rates, plus a fall in the value of the assets of the central bank, an increase in its losses and even larger negative net worth. If this death spiral is not halted in time, confidence in the currency may fail and accelerate a flight out of money into real assets, at which point the purchasing power of the currency may plunge toward zero. This vicious circle can in principle be halted by tightening monetary policy, i.e. by halting government debt monetization and reining in the money supply. However, once the downward spiral has started, halting debt monetization can precipitate a government default, which would inflict large additional losses on the central bank. A government default may also crash the financial system, forcing the central bank to recapitalize it to avoid a general financial collapse. Recapitalizing the financial system means printing even more money, which the central bank will have to withdraw later on so as not to fan hyperinflation. Thus, a central bank can avert the onset of hyperinflation only if it has the assets to withdraw excess liquidity after accounting for losses from a government default and after recapitalizing the financial system. Without sufficient assets, it may not be able to stop printing money once the death spiral of rising interest rates and rising debt monetization has begun. Its hands may be tied by the government or, even if it is free to choose its course, it may keep the presses rolling to prevent an immediate collapse of the financial system and a general liquidation, which might be even less desirable than continuing to print. How large is the hyperinflation risk? Debt levels (household, corporate, financial and government debt combined) in many Western industrialized nations are a multiple of GDP, while the non-inflationary loss-absorption capacity of their central banks is probably in the single digits if expressed as a percentage of GDP. The potential for losses significantly exceeding the central bank loss-absorption capacity thus certainly exists. The longer governments run large deficits, the longer central banks continue to monetize them, and the longer their balance sheets grow, the higher the potential for enormous losses and thus hyperinflation. Hyperinflation may be triggered by a rise in government borrowing costs, either because financial markets start to question the sustainability of the current arrangement or simply because of rising inflation and inflation expectations. Hitherto, no major central bank has experienced significant losses on the assets it purchased in the framework of its quantitative easing programs, and all major central banks exhibit positive net worth. However, these facts should not alleviate concerns about hyperinflation. Central bank assets, mostly government bonds, are priced to perfection. Their value may fall drastically once inflation expectations and interest rates rise and general economic conditions deteriorate. Gold – the ultimate balance sheet equalizer Necessary preconditions for hyperinflation are a quasi-bankrupt government whose debt is monetized by a central bank with insufficient assets. A central bank with large net wealth could in principle halt hyperinflation, as we have argued above. A central bank with insufficient assets cannot. Only by recapitalizing an insolvent central bank can the choice between hyperinflation on the one hand and a general liquidation on the other be avoided. However, if the government is broke as well, it cannot recapitalize the central bank. Is there another way to create new wealth to balance the central bank's assets and liabilities and avoid that dreadful choice? It turns out that there is – by revaluing gold. Both the US and Europe own significant gold reserves (US: 8,134t, Germany: 3,391t, Italy: 2,452t, France: 2,435t). Contrary to that of all other commodities, the price of gold is primarily determined not by industrial demand or mining costs but by investors. Gold is worth as much as investors believe it is. If central banks can succeed in convincing investors that the value of gold is greater than today's prices, then it is, and new net wealth has been created. Can central banks indeed do that? It turns out they can. One can always weaken one's own currency against another currency, and gold can be considered a currency. The SNB proved that last year when it weakened the Swiss franc by declaring its intention to sell unlimited amounts of Swiss francs. To revalue gold, a central bank needs to set a minimum price for it and declare that it will buy unlimited amounts of it at that minimum price. Since central banks can print money at will, they will never run out of their own currency. Therefore, the threat to buy unlimited amounts of gold at a minimum price is credible. If the public does not believe in the sustainability of the new price and sells its gold, the central bank purchases all gold offered at the minimum price by printing money, until it has weakened its currency to such a degree that the gold price rises above the minimum threshold. Initially, buying gold by printing new money will be inflationary and weaken the currency further. However, once the new equilibrium gold price is exceeded, the currency can be stabilized. The central bank is solvent again and can stabilize its currency by reducing excess liquidity and raising rates. Note that only central banks of large currency areas, such as the ECB or the US Fed, can revalue gold. If a small central bank tried to do so, it would devalue its own currency rather than revalue gold, and thus inflame inflation in its currency area. How much could gold be revalued by? The new minimum gold price must be set such that the revaluation gains balance the combined assets and liabilities of the government, the financial system, and the central bank. The US owns 8,134t of gold currently worth around USD 440bn, or 3% of GDP (although US gold is currently valued at only USD 42/oz). The Eurosystem discloses 10,783t of gold reserves worth USD 440bn, or 5% of GDP. Assume that a currency area owns gold reserves equivalent to 4% of GDP, and that the combined balance sheet of the government, financial system and central bank has a negative net worth of 100% of GDP, a not unreasonable assumption given that total debt amounts to 200%-400% of GDP in many industrialized countries. To bring the balance sheet into balance, the gold price would then have to rise by a factor of 25. What would prevent governments from over-borrowing and revaluing gold again and again? If gold were indeed revalued enormously, it would represent a significant fraction of all assets and would thus regain an important role as a store of value. The gold price would then discipline monetary policy and become the main anchor for fiat currencies. This would significantly hamper the build-up of large imbalances in the future. Even if central banks do not revalue their gold reserves, gold prices would still rise in a period of hyperinflation. Therefore, the balance sheet gap in those currency areas that own gold may close at some point in time and stabilize their currency. However, by then the currency may have lost most of its purchasing power. By revaluing gold, hyperinflation may be stopped in its tracks or avoided altogether. One way or another, owning physical gold is the safest and most effective way of insuring against hyperinflation.

James S. Brady Press Briefing Room
1:30 P.M. EST
MR. CARNEY: In the chart behind me you can find in a link from the blog post that we just put up on whitehouse.gov and that I tweeted, written by Communications Director Jen Palmieri. That blog post is a refresher about the President’s plan to eliminate the sequester and reduce our deficit beyond even the deficit reduction called for by the sequester.
To those of you who have covered this it will be familiar, because that plan has been on the table and an offer for quite some time. And we know and you know that leaders in Congress are aware of this because they were on the receiving end of the offer and that offer remains on the table.
If you note, in this particular chart, a couple of interesting facts. The first is that from 2009, when the deficit was the largest as a result of the Great Recession, we have seen a decrease in the size of the deficit that represents the largest reduction since the end of World War II. What you see beyond that in the projections, which are administration calculations based on the CBO baseline, is what would happen to the deficit as a share of GDP if the President’s plan -- the offer to Speaker Boehner -- were implemented.
And as you can see, we would be, beginning in 2015, we would reduce further -- in 2013, 2014, and beginning in 2015, through the decade, we would see the deficit as a share of GDP coming in under 3 percent, which is a sort of magic number for economists in terms of stabilization of our debt-to-GDP ratio, which is very important -- deficit-to-GDP ratio.
So I encourage you, for those of who need a refresher, to take a look at the documents online -- at the charts as well as Jen’s blog post. That's point number one.
Point number two, many of you have asked -- because I know you're intensely interested in process -- when the President is going to or has most recently spoken to Republican leaders on the Hill. I can tell you that he placed calls earlier today to Senator McConnell and Speaker Boehner; had good conversations. But I have no further readout of those calls for you.
Number three, the President, as I think you know by now, will be visiting Newport News, Virginia next week to highlight the fact that there will be real-world impacts to the implementation of the sequester if that takes place, if Republicans choose to allow that to happen. There will be jobs on the line if the sequester takes place. And the President will, as he continues to do, call on Republicans in Congress to agree to avoid the sequester because it’s a wholly unnecessary self-inflicted wound on the economy if it were to take place.
And with that, I go to the Associated Press.
Q Jay, the Chamber and the AFL-CIO have announced an agreement today on immigration. Can you talk about how important that development is in the process, and whether the White House agrees with the principles that they have on the worker visa program?
MR. CARNEY: Sure. This is yet another sign of progress, of bipartisanship, and we are encouraged by it. At the same time, the agreement you refer to is an agreement on principles, and we remain focused on encouraging the Senate to develop a comprehensive bill.
We are very focused on, as we’ve made clear in recent days, the bipartisan effort underway in the Senate. We think, and the President thinks, that represents a real, good chance at achieving something that has been a goal of Republicans and Democrats, as well as Americans across the country and businesses across the country for quite some time. And we hope that process continues. We urge the Senate to continue the good work they’ve done so far, the Group of Eight and their progress, and this is certainly part of that.
Q They also talked about the need for a new federal bureau to report to the public on the work in different industries around the country. Do you think that that’s something that would be useful?
MR. CARNEY: I don’t have a response to some of the details of this agreement on principles. I can tell you we think it represents a continuation of the progress we’ve seen, but we’re focused on the bill that the Senate hopefully will produce relatively soon as part of this bipartisan effort.
Q I want to ask about gasoline prices and, as you likely know, they skyrocketed over the past month or so. And I’m wondering what concerns the White House has about the impact of the rise in gasoline prices on the economy, and whether there is any consideration being given to using the SPR to take the edge off speculation in the market.
MR. CARNEY: The President understands the impact of high gas prices on families, which is why he continues to implement and pursue an all-of-the-above approach. And that all-of-the-above approach includes, as you know, increasing domestic production of oil and gas, increasing the efficiencies of the vehicles that we drive, investing in alternative energy and advanced technologies with an ultimate goal of reducing our reliance on foreign oil and protecting consumers at the pump.
We’ll continue to do everything we can to ensure that consumers are protected and that we are less vulnerable to the ups and downs of the global oil market. As you know, and we try to remind you, in the last year since the President has taken office we’ve seen dramatic increases in domestic energy production, oil and gas production -- record levels of natural gas. And we have seen significant reduction in our dependence in our imports on foreign energy, foreign oil. We need to take steps so that that progress continues.
Last week, the U.S. Energy Information Administration announced that “crude oil production increased by 790,000 barrels per day between 2011 and 2012, the largest increase in annual output since the beginning of U.S. commercial crude oil production since” -- way before any of us were born -- “1859. The U.S. Energy Information expects crude oil production to continue rising over the next two years, represented in the short-term energy outlook.”
On your last question, I have no announcements or comment on the SPR. As you know, we keep all options on the table.
Q How concerned is the White House about the impact of speculation in the market at this time?
MR. CARNEY: Well, I would just say that we do all we can to ensure that consumers are protected. That has been the case all along in this process where we’ve seen periodically elevated price in oil and gas markets. Our overall focus has to be, however, on the need to insulate ourselves from these spikes in market prices by pursuing an all-of-the-above energy policy -- one that increases domestic production, increases the production of alternative energy sources so that we are not subject to the ups and downs of the global markets.
Q And is the White House talking to refineries at all about things that they could do logistically to make a difference?
MR. CARNEY: I don’t have any conversations like that to read out to you.
Q You said that the President is looking for bipartisan agreement from the Senate on immigration reform. But the White House -- the President has laid out his own principles on immigration reform, and it doesn’t even include mention of a program for guest workers, low-skilled workers to come to the U.S., while you’ve let the Chamber -- the White House has allowed the Chamber to negotiate with AFL-CIO on what they would like in a deal. I can’t remember the last time outside groups have negotiated policy for the White House. Why isn’t a guest worker program part of your --
MR. CARNEY: You didn’t cover the last administration?
Q Well, okay, so you’re comparing yourselves to the Bush administration now, willingly?
MR. CARNEY: My point is that when you see the Chamber --
Q And why isn't it included? And isn't that politics?
MR. CARNEY: When you see the Chamber of Commerce coming together with the AFL-CIO and reaching an agreement on principles on this difficult issue, that represents significant progress. And our interest, as you have seen repeatedly, is not to dictate here, but to see the bipartisan effort in the Senate move forward. And we view this as more indication of that progress, and we will keep our eye on the ball here, which is the work that’s being done in the Senate.
Q Does the President endorse a program for low-skilled workers as part of an immigration reform plan?
MR. CARNEY: We will see what the Senate produces. And we see this agreement on principles as a positive development, a sign of progress. But I’m not going to prejudge a bill that has not been written.
Q And what’s the White House’s response to a letter from 15 Republican senators calling for the President to withdraw the nomination of Chuck Hagel to be his Defense Secretary?
MR. CARNEY: There is so much I have to say about that. First, I would point you to Senator Shelby's comments this morning that he will support Senator Hagel's confirmation. He joins other Republicans, like Senator Johanns and Cochran. And I would also point you to Republican senators from the weekend shows who said they will support an up or down vote next week when the Senate returns, on Senator Hagel. Even Senator Hatch said this morning, "I don’t think we should filibuster Cabinet appointments." And we certainly agree with that sentiment. It's been expressed by many others.
It is unfortunate, however, that some Senate Republicans put political posturing ahead of our nation's security. For the first time in American history, Senate Republicans filibustered a nominee for Secretary of Defense -- a member of their own party, a decorated combat veteran, and the right leader for our troops. A clear majority in the U.S. Senate supports Senator Hagel's confirmation. So today's actions that you refer to run against both the majority will of the Senate and against our national interest.
And this waste of time is not just meaningless political posturing, because we firmly believe that Senator Hagel will be confirmed. But the waste of time is of consequence. There are 66,000 men and women in uniform in Afghanistan, and we need our new Secretary of Defense on the job to be part of the significant decisions that have to be made as we bring that war to a responsible end.
This week in Brussels, the United States will meet with our allies to talk about the transition in Afghanistan at the NATO defense ministerial, and our next Secretary of Defense should be there. He is not because of this political gamesmanship that we've seen.
So for the sake of national security, we urge the Senate to confirm Senator Hagel. We urge the Senate to confirm John Brennan, and to get them to work because the nation needs them to be at work.
Q And just to be clear, he won't be withdrawn?
MR. CARNEY: Absolutely not. Any suggestion to the otherwise -- to the contrary might have been found in the minutes of the meetings of the Friends of Hamas. (Laughter.)
Yes.
Q Jay, the current Secretary of Defense said that if the sequester cuts go into effect we would turn into a second-rate power. Does the President agree that if these cuts go into effect America will become a second-rate power?
MR. CARNEY: The President agrees with his Secretary of Defense -- his current as well as his future. He agrees with the Speaker of the House. He agrees with the numerous Republicans who have said on the record that the onerous cuts in the sequester to defense -- the across-the-board, indiscriminate cuts to defense will harm our national security interests; will reduce our readiness; will result in a reduction in flight hours; will result -- have resulted already in changes in our rotation for aircraft carriers to the Persian Gulf. These are real-world consequences.
This also will result, as we learned yesterday, in hundreds of thousands of furlough notices to men and women who are part of the national security team who work every day to protect the United States and our citizens.
So the consequences here are real. What we, unfortunately, see these days, including in an article in The New York Times today, is an indication from Republicans that they don’t really care; that they're anticipating the sequester will go into effect, and they're not willing to do what the American public, as we've seen in poll after poll, overwhelmingly supports, which is to adopt the President’s position of eliminating the sequester through a balanced deficit reduction plan.
They’re not willing to protect the jobs of what the CBO predicts could be up to 750,000 Americans by asking oil and gas companies to forego their taxpayer subsidies, or corporate jet owners to give up their special tax break. They’re not willing to do that. And this is very disappointing.
Q But, Jay, on the military spending, specifically, even if the cuts go into effect, the U.S. will spend more than China, Russia, all of Europe combined -- far more. If we're a second-rate power, who’s the first-rate power?
MR. CARNEY: I don't think the issue here is the language you use to describe it, because every characterization you make of it, if you're being honest about it, is negative. The impact will be negative. It will harm our national security. And that is a problem.
Moreover, it will harm tens of thousands of children who would be thrown off of Head Start. It will harm children who depend on mental health services; seniors who depend on services. It will harm first responders across the country who will get furlough notices or layoff notices, teachers and the like.
The consequences of this are real. This is not just -- there seems to be a willingness, unfortunately, among Republicans on the Hill to reject the opinions of the vast majority of the American people; reject, obviously, the reasoned and moderate propositions put forward by, and proposals put forward by the President, and to adopt this approach that says, again, we would rather protect these special interest tax breaks than take action -- very simple action -- to keep those Americans in their jobs.
Q But put aside Republicans for a while. What do you say to Americans who, through this recession they’ve had to go through, they’ve had to make adjustments in their own family budgets, and to think that cutting 3 percent of an overall budget, 10 percent of a specific part of the budget, that the only way to do that is to do these draconian cuts that will jeopardize national security -- will mean forest fires won't be able to be put out; will mean prosecutors will have to let crooks go. I mean, what do you say to Americans --
MR. CARNEY: That's the facts, Jon. And what we would say is the sequester --
Q You can't run a government on $3.7 trillion?
MR. CARNEY: The sequester, as everyone recognized at the time, was specifically designed to be so loathsome that Congress would actually be compelled to compromise. That was the idea. And compromising, coming up with the $1.2 trillion in deficit reduction, in a way that protected our national security and protected our vital interests like the children on Head Start or the seniors who rely on services, teachers and first responders. The whole point was for it to be this bad so that Congress would never go along with it.
Unfortunately, there has been a change of heart in Congress, apparently, on the Republican side, especially in the House, and an embrace of an approach that has real-world consequences for real people who are sitting at home, or will be tonight, after work, wondering if they’re going to have a job in a month or two months.
Bill.
Q So now that you’ve tantalized us with the fact the President called the Republican leaders, can't you at least suggest that he made an offer or threw down a gauntlet, or something?
MR. CARNEY: I think we all know what’s on the table, what has been on the table from the President. We all know that the President supports the efforts of Senate and House Democrats to pass legislation that would postpone the sequester -- again, a manufactured crisis that’s unnecessary -- and by postponing it, allow the Congress to take action on further and broader deficit reduction in a balanced way.
Q Was he reaching out to them simply to restate his position, or to reach out to them in the interest of compromise?
MR. CARNEY: The President spoke with Senator McConnell and the Speaker. I have no content to read out to you of those conversations. The President speaks with leaders and other members of the Senate and the House, and sometimes we don’t read out the content.
Q Yes, but this was more than, “hey, how are you doing?” -- right?
MR. CARNEY: Again, there are a number of issues that need to be discussed. Certainly the sequester is one of them. But I don’t have any characterization of those phone calls.
And to your question about compromise, I will simply remind you that if we take as a fact or as an assumption the notion that Democrats would prefer to deal with our deficit by raising revenues and Republicans would prefer to deal with our deficit by cutting spending, including cutting entitlement reforms, and that the tough choices for Democrats is to go along with spending cuts and go along with entitlement reforms, and the tough choices for Republicans is to go along with revenue increases, I encourage you to look at who has compromised -- who has put forward plans that represent tough choices for his party; who has led Democrats to go along with middle-of-the-road, common-sense plans that include spending cuts, that include entitlement reforms as well as revenues -- and that’s the President.
What we have not yet seen -- and this is the false-equivalence problem that we have in some of the -- the way this is viewed -- we have not yet seen a single proposal by the Republicans to deal with the sequester or to deal with our overall deficit challenge that represents the kind of balance that the American people want in a deficit reduction plan and want their leaders in Washington to embrace. That’s just a fact.
And this President has demonstrated again and again -- in his submission to the super committee, in his budget, in his proposals to Speaker Boehner -- a willingness to compromise, a willingness to meet Republicans halfway. But you come halfway and you’re negotiating partner stays where he or she is, that makes it very difficult to reach a compromise. You need compromise from the other side.
Q So what was he trying to do when he called?
MR. CARNEY: There are a lot of issues that are at stake here, there are a lot of topics to discuss. But I don’t have a read out of the call.
Q And one other thing. We understand the administration is weighing whether to intervene at all in the Prop 8 case before the Supreme Court. Can you tell us any more about that?
MR. CARNEY: I can tell you that decisions about whether to -- decisions about Supreme Court cases are made over at the Department of Justice and I would refer you there. And I have no comment on that case to which the United States is not a party at this time.
Q Yes, but we understand that the President was thinking of weighing in.
MR. CARNEY: Again, I think you have seen no expression from the President on the constitutional or legal aspects of this. He has an opinion, obviously, about Proposition 8 as policy, but we have no comment and nothing to say at this point about an issue that is properly looked at as a legal and constitutional matter over at the Department of Justice.
Q But they’re thinking about filing an amicus brief, right?
MR. CARNEY: Again, I just don’t -- I don’t have a hint for you either way. That’s something -- a question that I would take to Justice.
Kristen.
Q Jay, thanks. Does the President think that ultimately he is responsible if the sequester kicks in, given that he’s Commander-in-Chief? I mean, does the buck stop with him, in other words?
MR. CARNEY: The President is Commander-in-Chief and he is very concerned, and that is why he has put forward compromise proposals again and again to the Republicans in the hopes that we can achieve something here in terms of deficit reduction that hits the mark of $4 trillion -- in fact, exceeds -- with his plan and proposal -- exceeds the $4-trillion mark, not insignificantly, because that would be the right thing for our economy.
And we can do it in a way -- if we follow this blueprint, this balanced blueprint that his plan represents and that is reflected in all of the bipartisan proposals that we’ve seen out there from commissions and the like, because it’s the right thing for our economy and we can do it in a way that helps the economy grow, that prevents the kind of hit to our economic growth and job creation that implementation of the sequester would bring about according to outside economic analysts as well as the CBO.
So his feeling of responsibility is represented in the fact that he continues to offer solutions, rather than attempting to engage in word games about whose idea the sequester was, for example. I mean, imagine if Republicans put half the amount of effort into finding a solution to this problem as they have into coming up with hashtags -- and hashtags that are at total odds with the facts, which is that Speaker Boehner, Chairman Ryan, Eric Cantor, Kevin McCarthy all voted for the sequester. They all encouraged their membership to vote for the sequester. And they did such a good job that they got an overwhelming majority of their membership to vote for the sequester -- far more as a percentage than Democrats voted for it. And the Speaker said he was so pleased he got 98 percent of what he wanted out of that deal.
So there is some responsibility here on the Republican side to do what the President has done, which is to hear what the American people are saying -- which is, please compromise, please be reasonable, please do not adopt positions that represent a “my way or the highway” approach.
Q But at this point there doesn’t seem to be any progress. So what’s his strategy to get everyone to sit down and figure this out?
MR. CARNEY: Again, the President has put forward -- Kristen, the President has put forward and continues to support efforts to avert this unnecessary manufactured crisis to ensure that Congress doesn’t foolishly allow the sequester to take effect and cause Americans across the country to receive furlough notices and layoff notices, and for children and seniors and other vulnerable communities to have their services cut or reduced.
And he will continue to implore Republicans to reconsider their position -- a position that, unfortunately, they're very publicly taking now, which is that they don’t care enough about implementation of the sequester to ask corporate jet owners to give up a tax break.
Q I want to ask you one on Iran. According to a U.N. nuclear reporter, Iran has been installing advanced centrifuges at its main uranium plant. Chris Van Hollen just said that these talks that are coming up next week are the last best chance to resolve this issue in a peaceful manner. Does the President, does the administration share that view? And are these talks the last best chance --
MR. CARNEY: Well, we have been clear that the United States is determined to prevent Iran from acquiring a nuclear weapon. And we have also been clear that we believe there is still time to resolve this issue diplomatically.
We hope that the Iranian regime will make the strategic decision to come to the February 26th talks that you refer to, with the P5-plus-one in Kazakhstan, prepared to discuss substance so there can be progress in addressing the international community's concerns about the nature of the Iranian nuclear program. We certainly remain ready to do so.
Iran has a choice. If it fails to address the concerns of the international community, it will face more pressure and become increasingly isolated. The burden of sanctions could be eased, but the onus is on Iran to turn its stated readiness to negotiate into tangible action.
What we have said and remains true today is that the window remains open for this to be resolved diplomatically, but that window will not remain open indefinitely. And we have been very clear with the Iranians about that, and we encourage them to come to these talks ready to speak seriously about abiding by their international obligations.
Ed.
Q Thanks, Jay. A couple on the sequester. On Jon's question about Secretary Panetta obviously saying the defense cuts would be serious, there are other Democrats like Howard Dean who are saying they should let the sequester happen, because he says he fears some of the domestic cuts, as do you, but he thinks this is a sort of a once-in-a-lifetime chance to have real cuts at the Pentagon.
MR. CARNEY: Who is this? I'm sorry.
Q Howard Dean, former Democratic Party Chair.
MR. CARNEY: I'm sorry, I didn’t hear who you had said. We disagree.
Q So what do you say to fellow Democrats who say this is a good chance to cut the Pentagon?
MR. CARNEY: Well, I haven't heard many say that. And we disagree with that proposition.
Q Okay. Yesterday, I asked you about the WARN Act and the notices on furloughs, and you said the reason why you didn’t put those out before the election was that that was not 10 days before implementation. Now, eight days, obviously --
MR. CARNEY: Well, I think I said something like that. The point is we are now very close to implementation. But I would refer you to OMB and others about how that process works.
Q But the WARN Act, those are something like 60-day notices, right? So if we’re under 10 days now, my question is, the Pentagon did a briefing yesterday saying that the furloughs among defense civilian employees wouldn’t really take place until late April. Is the fact that you're putting out --
MR. CARNEY: I think the process begins -- and there's a process at work here that is administrative that -- well, you announced something that’s going to begin, and notices begin to go out, and there are notices of furloughs that didn’t take place in the future. But I would refer you to the Pentagon for details.
Q But do they kick the can down the road in terms of cuts so that you have to cut into other things in March?
MR. CARNEY: Each agency is having to deal with the pretty serious implications of the sequester -- the dramatic, across-the-board indiscriminate cuts to their budgets that the sequester represents. And the Defense Department is clearly one of those agencies that will be hit very hard. But I would refer you to the agencies themselves about how they are managing that process. It's a complicated process.
Q Last thing, on Medicaid. The President got good news last night from Florida because you have a Republican governor, Rick Scott, who is saying that he now wants to expand Medicaid. He's one of several Republican governors who have sort of flip-flopped on that. How is the White House viewing the fact that there are these Republicans all of a sudden saying, well, maybe that’s a good idea, we’re going to implement it? Is this going to help implement his law?
MR. CARNEY: We’re focused on implementation of the Affordable Care Act, and we think the decisions made by governors across the country to move forward with implementation recognize that the benefits here for providing affordable health care to the citizens of their state are very worthwhile.
And we will continue to work with governors in states across the country to bring about the implementation of the Affordable Care Act because of all the benefits that derive from implementation and the savings that derive from it. So we’re just going about the business of implementing this very important piece of legislation.
Roger.
Q Thank you. Back to Iran for a moment. Western diplomats are saying that the P5-plus-1 are prepared to offer what they say are significant new offers. Can you shed any light on that?
MR. CARNEY: I’m not going to get into details of what the P5-plus-1 will present in Kazakhstan other than to say that the group is united in its approach and is ready to have a serious and substantive discussion. Let’s allow the negotiators to do their work. We simply call on the Iranians to arrive at those talks with the intention of having them be substantive and focused on the issues that are of concern here to the international community.
Q We had reports today that Iran rolled out some new atomic technology today.
MR. CARNEY: I think Kristen asked about that.
Q That doesn’t seem to bode well.
MR. CARNEY: Well, again, the actions taken by Iran that represent a continuation of their refusal to abide by their international obligations are hardly a surprise. They are why Iran is suffering under a sanctions regime that is more strict and more universally applied than any in history, and a regime that’s having a real impact -- a negative impact on the Iranian economy and on its political structure.
There is a way for Iran to avoid these sanctions and further sanctions, and that is to abide by -- through the P5-plus-1 process -- to come to an agreement whereby they will abide by their international obligations. And that is the purpose of the talks, and we hope that those talks will be substantive and serious.
Chris.
Q Jay, the President’s former ambassador to China and former presidential candidate, Jon Huntsman, has come out for same-sex marriage in an article in the American Conservative. Any reaction to that?
MR. CARNEY: I didn’t know about that. I think that what we have seen, and the President has spoken about this, is an evolution, if you will, of views across the country about this issue, about extending rights to LGBT Americans. And the President feels very strongly about that, as you know. So while this is not news I was aware of, it’s certainly in concert with the President’s views.
April.
Q Jay, I want to go back to issues of sequestration. You have said if sequestration were to happen, it would erode the progress made to keep the country out of recession. Well, Congressional Black Caucus head, Marcia Fudge, says, if that 750,000 number is correct and those jobs would be lost, it would definitely put America back in recession. That’s a large number. What do you say about that, about recession, versus the erosion of the process?
MR. CARNEY: Well, it’s hard to predict, and there are technical ways to define recession. What we know, looking at the CBO’s analysis and analysis by Moody’s and Macroeconomic Advisers is that the impact of implementation of the sequester on GDP would be something on the order of -.5 or -.6 percent of GDP. And that is a significant hit.
We’re not ready to predict what that means technically in terms of recession. What we do know is that it would do harm to our recovery and it would certainly, through the losses of jobs that would come about from implementation of the sequester, as well as the reduced job creation brought about by the slower growth, it would have an extremely harmful impact on jobs in this country.
So we agree with the concern expressed, and that’s why the President continues to put forward and support proposals that represent the balanced approach that we need to take to eliminate the sequester and to reduce our deficit in a way that allows our economy to grow, allows it to expand, and make more secure the middle class.
Q Let me ask you this last question. Do you think it’s a far reach for your fellow Democrat to say that it’s recession, that it would go back into recession?
MR. CARNEY: Again, I think that’s something I leave to the economists to project and then to analyze if and when something like that were to happen. What we know with unfortunate certainty is that the impact of sequester would be negative on the economy.
Q Jay, the Boston Globe had a story today that the State Department is considering taking -- reviewing whether or not Cuba should be on the terror list. What’s the White House’s discussions on that?
MR. CARNEY: We have no changes in our approach or policy to Cuba to announce or under consideration that I’m aware of.
Q Are you saying, then, that there’s not consideration of --
MR. CARNEY: Again, not that I’m aware of.
Q -- of taking Cuba off of the terrorism list?
MR. CARNEY: That’s right. I’m not aware of any.
Q Has the White House or NSC?
MR. CARNEY: Correct.
Q Okay. And have you had any conversations with Senator Leahy, who’s been down in Cuba, and his delegation had met with the detained American, Alan Gross?
MR. CARNEY: I don’t know that -- I certainly haven’t and I don’t know if anybody in the administration has. The President, as you know, has followed Mr. Gross’s case with concern and urges his release. The Cuban government should release Alan Gross and return him to his family where he belongs.
Mr. Gross is in his fourth year of unjustified imprisonment in Cuba. He was arrested on December 3, 2009, and later given a 15-year prison sentence by Cuban authorities for simply facilitating communications between Cuba’s Jewish community and the rest of the world.
Mr. Gross is a 63-year-old husband, father, and dedicated professional with a long history of providing assistance and support to underserved communities in more than 50 countries. Again, we call on the Cuban government to release Mr. Gross.
Q On the sequester.
MR. CARNEY: Yes, Connie.
Q With all the President’s powers, isn’t there anything he can do by executive order at this point to stop sequester?
MR. CARNEY: It would certainly be a welcomed development if the President were able to legislate. Unfortunately -- at least in this case -- unfortunately, that is not a power that the President has, and it is up to Congress to act.
Congress chose to write the sequester into law with overwhelming support from Republicans because it felt that the sequester would be so onerous as an outcome that it would never come to pass. Congress is responsible for making sure it does not come to pass.
The President has provided, again, a series of proposals for how to eliminate the sequester; ensure that its effects are never felt by middle-class families across the country; and that those proposals represent real compromise, they represent the balance that, as we see again and again in surveys of public opinion, the American people strongly support. Unfortunately, thus far, we have seen from the Republicans intransigence and a seeming desire to flout the American people’s will here and to allow the sequester to take effect, and that’s unfortunate.
Q He can’t legislate, but can’t he mandate at this point?
MR. CARNEY: It’s, unfortunately, in this case, not in his power to eliminate the sequester. Congress needs to pass a law.
Yes.
Q The conflict in Syria looks like it’s overspilling into Lebanon now with the Free Syrian Army is engaged in battles with Hezbollah in Lebanon. Do you still believe that the administration policy is the right one regarding Syria and still not supplying weapons to the rebels?
MR. CARNEY: It is still our policy that we are providing nonlethal assistance to the opposition. We are providing substantial humanitarian aid to the Syrian people. And we are working with our allies to put pressure on the Assad regime to bring about a future that the Syrian people deserve, and that’s a future without President Assad.
We are constantly evaluating the situation in Syria and evaluating our policies with regards to Syria, as you would expect. But, again, I think it’s important to know we are the lead provider of humanitarian assistance to the Syrian people and we have provided substantial nonlethal assistance to the opposition, and we have worked with the opposition to help itself unify as it works to bring about a future in Syria that is better for the Syrian people and is -- and that requires the absence of President Assad.
Q -- you say it’s evolving? Do we expect some --
MR. CARNEY: Oh, I didn’t say it was evolving. I was simply saying that we’re constantly reviewing our policy.
Q You’re reviewing it. Does that mean that we expect some change in the near future?
MR. CARNEY: No, I’m simply saying that we are constantly reviewing every possible option that could help end the violence and accelerate a political transition. The options we have considered include whether the provision of lethal assistance to the opposition would hasten our goal.
As we analyze every option, we must assess whether the action will change Assad’s calculus and hasten a transition to a post-Assad Syria. We also must consider whether it will provoke a wider regional conflict and endanger our allies, including Israel, or create a risk that weapons will fall into the hands of extremists.
There are no easy answers, and the President has said that he wrestles with these decisions. Right now, we are focusing our efforts on helping the opposition become stronger, more cohesive, and more organized. As a result of this effort, we will continue to analyze every feasible option that would accelerate a political transition to a post-Assad Syria.
Yes.
Q What is the President doing to reassure NATO and other allies about the cost of defense cuts as a result of the sequester?
MR. CARNEY: Well, as I mentioned in reference to the politically driven stalling of the confirmation of Senator Hagel to be Secretary of Defense, we have important business to do. There is a defense ministerial taking place and Senator Hagel should be there as Secretary of Defense. But it is certainly something that we discuss. I think Secretary Panetta has been talking about it. It is of concern, but I don’t have any specific conversations to read out to you.
Yes, Susan. And then Jackie.
Q Did the White House or the administration make the Department of Defense wait to release the specific cuts on the sequestration until the last two weeks? It seems like we're just hearing about this. And General Odierno had said last week that they didn’t prepare for it very well because they didn’t think it was going to happen.
MR. CARNEY: No. The answer to your question is no. And there is a process here underway. I think -- I mean, I can't speak for General Odierno, but I think we're all hopeful and remain at least insistent that Republicans do not make the choice to allow sequestration to happen; that they choose instead to come up with a balanced plan or to agree to a balanced plan to postpone or eliminate the sequester.
The fact is, broadly speaking, we've known what the impact of these dramatic, across-the-board cuts would be. I can quote to you page after page of Republicans citing the harm to the Pentagon and our defense readiness that would come if sequester were to take effect.
Q I mean, why are we hearing so much about the furloughs, the civilian furloughs, and not weapons systems like Congress --
MR. CARNEY: I would refer you to each agency for how they are planning for the implementation of the sequester if it comes about. That’s a question that the Defense Department can answer.
Q But it seems like the weapons systems, a lot of them -- like the Abrams tank -- the Congress funded it and the Pentagon didn’t even want that. So why aren't we seeing weapons systems --
MR. CARNEY: Again, I think you should ask the Defense Department. I just don’t have any specifics for you on it.
Jackie.
Q Jay, the governors are coming this weekend for their annual winter meeting. How is the President going to use their presence here and his mixing with them to perhaps proselytize about the sequester and bringing that to an end in a way that won't hurt states?
MR. CARNEY: Well, I don’t want to preview or prejudge conversations that the President will have with the governors who are assembling here in Washington as part of their annual meeting.
The fact of the matter is that sequester is of great concern to governors across the country, and I'm sure that that will be a topic of conversation. It is also true that implementation of the Affordable Care Act is a topic of conversation that is likely to be raised because of the work that’s being done and the progress that’s taken place on that effort.
One of the things that we've talked about this week that is of great interest to governors, both Republican and Democratic governors, is the need to invest in our infrastructure. And governors of both parties are very interested in our efforts to both invest in "fix-it-first" infrastructure development -- going after those projects that are desperately needing maintenance and repair that can help put people back to work in their states as well as build the foundation for economic growth in the future; and in the proposals the President has as part of his plan for a public-private partnership to invest further in infrastructure development.
This is the kind of thing, as you know, Jackie, that has been traditionally an area of agreement between Republicans and Democrats; an area of agreement between labor and the Chamber of Commerce, labor and management; an area of agreement between all regions of the country. And it certainly should be an area of agreement now. So that will also be a topic of conversation.
Thanks, all.
END
2:16 P.M. EST

Brandon Smith, ContributorActivist Post
Throughout history, citizen disarmament generally leads to one of two inevitable outcomes: Government tyranny and genocide, or, revolution and civil war. Anti-gun statists would, of course, argue that countries like the UK and Australia have not suffered such a result. My response would be – just give them time. You may believe that gun control efforts are part and parcel of a totalitarian agenda (as they usually are), or, you may believe that gun registration and confiscation are a natural extension of the government’s concern for our “safety and well-being”. Either way, the temptation of power that comes after a populace is made defenseless is almost always too great for any political entity to dismiss. One way or another, for one reason or another, they WILL take advantage of the fact that the people have no leverage to determine their own cultural future beyond a twisted system of law and governance which is, in the end, easily corrupted.
The unawake and the unaware among us will also argue that revolution or extreme dissent against the establishment is not practical or necessary, because the government “is made of regular people like us, who can be elected or removed at any time”.
This is the way a Republic is supposed to function, yes. However, the system we have today has strayed far from the methods of a Free Republic and towards the machinations of a single party system. Our government does NOT represent the common American anymore. It has become a centralized and Sovietized monstrosity. A seething hydra with two poisonous heads; one Democrat in name, one Republican in name. Both heads feed the same bottomless stomach; the predatory and cannibalistic pit of socialized oligarchy.On the Republican side, we are offered Neo-Con sharks like George W. Bush, John McCain, and Mitt Romney, who argue for “conservative” policies such as limited government interference and reduced spending, all while introducing legislation which does the exact opposite. The recent passage of the “Safe Act” in New York with extensive Republican support proves that Republicans cannot be counted on to defend true conservative values.
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The Democrats get candidates like John Kerry, Hillary Clinton, and Barack Obama, who claim to be anti-war and against government abuse of civil liberties, and yet, these same “progressive and compassionate” politicians now froth at the mouth like rabid dogs sinking their teeth into the flesh of the citizenry, expanding on every tyrannical initiative the Republicans began, and are bombing more civilian targets in more foreign countries than anyone with a conscience should be able to bear.
I’ve said it before and I’ll say it again; the government is not our buddy. It is not our ally or friend. It is not a “part of us”. It is now a separate and dangerous entity. A parasite feeding off the masses. It has become a clear threat to the freedoms of average Americans. It is time for the public to grow up, snap out of its childish delusions, and accept that there is no solace or justice to be found anymore in Washington D.C.
Once we understand this fact, a question then arises – What do we do about it? If we cannot redress our grievances through the election process because both parties favor the same authoritarian direction, and if our street protests are utterly ignored by the mainstream media and the establishment, and if civil suits do nothing but drag on for years with little to no benefit, then what is left for us? Is the way of the gun the only answer left for the American people at this crossroads?
I cannot deny that we are very close to such a conclusion. Anyone who does deny it is living in a candy coated fantasy land. However, there are still certain options that have not been exhausted, and we should utilize them if for no other reason than to maintain the moral high ground while the power elite continue to expose their own despotic innards.State And County Nullification
The assertion of local authority in opposition to federal tyranny is already being applied across the country. Multiple states, counties, and municipalities are issuing declarations of defiance and passing legislation which nullifies any future federal incursions against 2nd Amendment protections. For instance, the Gilberton Borough Council in PA in conjunction with Police Chief Mark Kessler has recently adopted a resolution defending all 2nd Amendment rights within their municipal borders up to and including the denial of operations by federal officers:http://oathkeepers.org/oath/2013/02/03/first-molon-labe-town-in-america/
Approximately 283 county Sheriffs and multiple police officers have taken a hard stand, stating that they will either not aid federal enforcement officials with gun control related activities, or, that they will not allow such activities within their county, period:http://cspoa.org/sheriffs-gun-rights/
This trend of dissent amongst law enforcement officials debunks the nihilistic view promoted by disinformation agents that “no one in law enforcement will have the guts to stand up to the government no matter how sour it turns”. It has also shaken the Obama Administration enough that the White House is struggling to counter it by wining and dining police unions and sheriffs departments in order to form their own “coalition of the willing”. Obama seems to believe that holding press conferences using children or police as background props will somehow earn him political capital in the battle for gun rights, but I have my doubts:
http://news.yahoo.com/obama-asks-police-help-pass-183056466.html
http://www.sltrib.com/sltrib/politics/55716645-90/com-congress-doing-enforcement.html.csp
Multiple states have legislation on the table to nullify as well, and it would seem that the violent push by the establishment to extinguish the 2nd Amendment has actually sharply rekindled the public’s interest in States Rights and the 10th Amendment.
This does not mean, though, that we should rely on nullification alone. While the gun grabbers are stumbling into severe resistance at the national level, some representatives are attempting to supplant gun rights at the state level, including New York, California, Washington State, and Missouri. The goal here is obvious; counter states rights arguments by using anti-gun legislators to impose federal controls through the back door of state legislation.They will claim that if we support states rights, then we have to abide by the decisions of regions like New York when they ban and confiscate firearms. It’s sad how gun grabbers lose track of reality. Neither federal authority, nor state authority, supplants the legal barriers of the Constitution itself, meaning, no federal or local authority has the right or power to remove our freedom of speech, our freedom of assembly, our freedom of privacy, OR our freedom to own firearms (including firearms of military utility). The Constitution and the Bill of Rights supersede all other legal and political entities (including treaties, as ruled by the Supreme Court). At least, that’s what the Founding Fathers intended when they established this nation. The point is, a state is well within its rights to defy the Federal Government if it is enacting unconstitutional abuses, and the people are well within their rights to defy a state when it does the same.Economic Nullification
There is actually a fantastic economic opportunity to be had by states and counties that nullify gun control legislation. Many gun manufacturers and retail businesses are facing financial oblivion if the establishment has its way, and moving operations outside the U.S. is not necessarily practical for most of them (gun manufacturing is one of the last business models we still do better than the rest of the world). Municipalities could offer safe haven to these businesses, allowing them to continue producing firearms and high capacity magazines, fulfill expanding public demand, and create a surging cash flow into their area while at the same time giving the federal government the finger.
This strategy does not come without dangers, though. Many states and counties are addicted to federal funding, and some would go bankrupt without it. The obvious first response by the feds to protesting local governments will be to cut off the river of cash and starve them into subservience.
This brand if internal financial warfare can be countered by local governments by nullifying a few other unconstitutional regulations, including those issued by the EPA and the BLM. States and counties could easily disable federal land development restrictions and begin using resource development as a means to generate supplemental income. North Dakota is essentially doing this right now in the Bakken Oil Fields, becoming one of the few states in America that is actually creating legitimate high paying jobs (instead of part time wage slave jobs), and growing more prosperous every year.
This tactic is not limited to state governments either. Counties also have the ability, with the right officials involved, to regain control of their economic destinies anytime they want. All it takes is the courage to rock the establishment boat. Refuse All Registration Schemes
National firearms registration and gun databases are almost always followed by full gun confiscation. The process is usually done in a standardized manner: First demand extensive registration and cataloging of gun owners. Second, ban more effective styles of weaponry, including semi-automatics and high capacity rifles (Let the sport hunters keep their bolt actions for a time, and lure them onto your side with the promise that they will get to keep their .270 or their 30-06). Then take all semi-auto handguns. Then, ban high powered magnum style bolt actions by labeling them “sniper rifles”. Then demand that the gun owners that still remain allow official “inspections” of their home by law enforcement to ensure that they are “storing their weapons properly”. Then, force them to move those weapons to a designated “warehouse or range”, locked away for any use other than recreational shooting. Then, when the public is thoroughly disconnected from their original right to bear arms, take everything that’s left.
Keep in mind that the federal government and certain state governments are acting as if they would like to skip ALL of the preliminary steps and go straight to full confiscation. I am not discounting that possibility. But, they may feign certain concessions in the near term in order to get the one thing they really want – full registration.
Registration must be the line in the sand for every single gun owner in this country, whether they own several semi-automatics, or one pump action shotgun. Once you give in to being registered, fingerprinted, photographed, and tracked wherever you decide to live like a convicted sexual predator, you have shown that you have no will or spirit. You have shown that you will submit to anything.
After a full registration has been enacted, every gun (and maybe every bullet) will be tracked. If confiscation is utilized, they know exactly what you have and what you should not have, and exactly where you are. Criminals will still acquire weapons illegally, as they always have. The only people who will suffer are law abiding citizens. It’s a recipe for dictatorship and nothing more. Gun Barter NetworksThe retail firearms and ammo markets are Sahara dry right now, and will probably remain that way in the foreseeable future. Anything that is available for purchase is usually twice the price it was last year. Extremely high demand is removing retail from the picture before any legislation is even passed. Enter barter…
Cash will remain a bargaining tool for as long as the dollar remains the world reserve currency and holds at least some semblance of value (this will end sooner than most people think). That said, as gun items become scarce, the allure of cash may be supplanted. The signs of this are already evident.
Gun owners are now looking more to trade firearms and accessories for OTHER firearms and accessories, because they know that once they sell an item, they may never see it again, and the usefulness of cash is fleeting. Gun Barter is not only a way for firearms enthusiasts to get what they need, it is also a way for them to move around any future gun sale restrictions that may arise. Private gun sales are legal in some states, but do not count on this to last. Barter leaves no paper trail, and thus, no traceable evidence of transaction. For those who fear this idea as “legally questionable”, all I can do is remind them that an unconstitutional law is no law at all. If it does not adhere to the guidelines of our founding principles, our founding documents, and our natural rights, then it is just a bunch of meaningless words on a meaningless piece of paper signed by a meaningless political puppet. 3D Printing And Home Manufacturing
3D Printing is now available to the public and for those with the money, I recommend they invest quickly. Unless the establishment wants to make the possession of these printers illegal, as well as shut down the internet, there will be no way to stop data streamers from supplying the software needed to make molds for every conceivable gun part, including high capacity mags. This technology has been effectively promoted by the Wiki Weapons Project:http://defensedistributed.com/
According to current ATF law, the home manufacture of gun parts is not technically illegal, as long as they are not being produced for sale. But in a state or county where federal gun laws have been nullified, what the ATF says is irrelevant.
Home manufacturing of gun parts and ammo would be a highly lucrative business in such safe haven areas. And, the ability to build one’s own self defense platform is a vital skill in a sparse market environment. The ultimate freedom is being able to supply your own needs without having to ask for materials or permission from others. It should be the goal of every pro-gun activist to reach this independence.Force The Establishment To Show Its True ColorsWhile some in the general public may be incensed by the trampling of our freedoms by government, many (including myself) would view direct action and aimless French Revolution-style violence as distasteful and disastrous. The moral high ground is all that any dissenting movement has. It will be hard enough to keep this ground with the constant demonization of liberty minded people that is being espoused by propaganda peddlers like the SPLC and numerous media outlets. We do not need to help them do their jobs.
Now, to be clear, I have NO illusions that the above strategies will defuse a confrontation between those who value freedom, and those who desire power. The hope is that enough people within our population will refuse to comply, and that this will make any future despotism impossible to construct. However, it is far more likely that these acts of defiance will elicit a brutal response from the government. And in a way, that is exactly what we want…
The Founding Fathers went through steps very similar to those I listed above and more to counter the tightening grip of the British Empire during the first American Revolution. The idea is simple:
Peacefully deny the corrupt system’s authority over your life by supplying your own needs and your own security, rather than lashing out blindly. Force them to show their true colors. Expose their dishonor and maliciousness. Make them come after you like the predators they are, and then, once they can no longer play the role of the “defending hero” in the eyes of the public, use your right to self defense to send them a message they won’t forget.
Skeptics will claim that physical defense is useless against a technologically advanced enemy. They will claim that we need a "majority" we do not have in order to prevail. These are usually people who have never fought for anything in their lives. They do not understand that the “odds” are unimportant. They mean nothing. No revolution for good ever begins with "majority support". Each is fought by a minority of strong willed and aware individuals. When all other methods of protest have been dismantled, the system leaves us with only two options: stand and fight, or kneel and beg for mercy. All you need to know is what YOU would do when faced with that choice.
There is no other culture on earth that has the capacity, like Americans currently do, to defeat centralists, defend individual liberty, and end the pursuit of total global power in this lifetime. We are the first and last line. If freedom is undone here, it is undone everywhere for generations to come. This is our responsibility. This is our providence. There can be no complacency. There can be no compromise. There can be no fear. It ends on this ground. One way, or another…You can contact Brandon Smith at: [email protected] Alt-Market is an organization designed to help you find like-minded activists and preppers in your local area so that you can network and construct communities for mutual aid and defense. Join Alt-Market.com today and learn what it means to step away from the system and build something better. To contribute to the growth of the Safe Haven Project, and to help us help others in relocating, or to support the creation of barter networks across the country, visit our donate page here: http://www.alt-market.com/donate
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Submitted by Brandon Smith from Alt-Market The U.S. Economy Is Now Dangerously Detached From Reality Recently I was asked to give a presentation on the current state of the global economy to a local group of concerned citizens here in Northwest Montana. I was happy to oblige but when composing my bullet points I realized that, in truth, there were no legitimate economic numbers to examine anymore. You see, financial analysts have traditionally used multiple indicators of employment, profit, savings, credit, supply, and demand in their efforts to divine the often obscured facts of our financial system. The problem is, nearly every index we used in the past, every measure of capital flow and industry, is absolutely useless today. We now live in an entirely fabricated fiscal environment. Every aspect of it is filtered, muddled, molded, and manipulated before our eyes ever get to study the stats. The metaphor may be overused, but our economic system has become an absolute “matrix”. All that we see and hear has been homogenized and all truth has been sterilized away. There is nothing to investigate anymore. It is like awaking in the middle of a vast and hallucinatory live action theater production, complete with performers, props, and sound effects, all designed to confuse us and do us harm. In the end, trying to make sense of the illusion is a waste of time. All we can do is look for the exits… There is some tangible reality out there, but it is difficult to find, and there are few if any mainstream numbers to verify. One has to remember always that the fundamental world of money and trade revolves around real people and real circumstances. No matter how corrupt our economic system is, as long as there are human beings, there will always be supply and demand that cannot be hidden. We have to look past the “official numbers” and look at the roots of trade. Where has demand fallen? Where has supply diminished? Where are the tangible goods and needs and how have they changed? Let’s first start with the mainstream version of our system, looking at each aspect of the economy that no longer represents the truth of our situation… Employment, Savings, And Debt Much of this information is old news to those of us in the Liberty Movement, who tracked the progress of the global collapse long before the general public even knew of its existence. However, it is useful to take a step back and look at the basic picture every once in a while. According to numbers issued by the Department of Labor, weekly unemployment reports have dropped to a five year low, and the overall employment rate is holding at 7.9%. This would seem to be a vast improvement over the dreadful bloodletting in the system only a few years ago. Has the private Federal Reserve and the Obama Administration really done it? Have they turned back the tide on the greatest fiscal crisis the U.S. has seen since the Depression? No. They haven’t. They have only changed how the data is disseminated to the public. In order to understand how the employment statistics con is being engineered, it is important to understand the difference between “Adjusted” and “Unadjusted” numbers. Labor Department data is “seasonally adjusted”, using a series of statistical assumptions including something called “Trend Cycle Analysis”. Trend Cycle Analysis is, basically, a sham, but a sham put together in a very complex and confusing manner. If you ask a mainstream economist what it is, you’ll likely get a three hour long dissertation filled with financial babble and very little concrete explanation. So let me break it down as simply as I can… Imagine that you are going to estimate how much profit you plan to make in a particular month, but you don’t just consider your current pay rate and pop it into a calculator; you also throw in the possibility of a few pay raises, an inheritance from a grandma who might kick the bucket, and, your exaggerated expectations of the entire year’s profit on top of that. You may also take into account future bad weather, a mugging, a nuclear war….whatever. All hypothetical situations not based in reality. Basically, you decide that a particular trend in your income is inevitable, then, mold your statistical analysis around that assumption. When your real profit numbers come in (the unadjusted numbers) and they do not meet your expectations, you simply change them according to what you believe SHOULD have happened. If you insist that your profits are going to go up for the year, and they go down for a couple months instead, you change the variables you use to calculate the statistical average so that the results match your expectations, assuming that it will all balance out in the end. Now, this sounds utterly insane for the common person out there trying to make a living. If you ran your household this way, without accepting the cold hard unadjusted numbers in front of you, you’d find yourself broke and on the street in no time. Unfortunately this is EXACTLY how our government handles most financial data; by coming to a final conclusion before hand, and then forcing the numbers to fit that conclusion. This is why in February of 2013, “adjusted” first week unemployment rate was reported at 366,000 – a 5000 person drop from the week before. A seeming improvement in the trend. But, unadjusted numbers came in at 386,176 – a 16,000 person spike from the week before. When one examines real unemployment numbers, he finds that the divergence between the adjusted and unadjusted statistics is growing larger with each passing quarter. That is to say, the contradiction is becoming so blatant between the hard numbers and the Labor Department’s fantasy numbers that one must question whether or not the government is lying to us outright about the state of the economy (hint – they are lying). These same methods are used by the government to calculate progress in the housing market, disposable income, etc. The claim of “recovery” in the jobs market simply doesn’t jive with other indicators, like 2012 Christmas retail, which had the worst showing since the crash in 2008 (and these are still mainstream numbers!):http://www.foxnews.com/us/2012/12/26/us-holiday-retail-sales-growth-weak... Average household savings continue to scrape the bottom of the barrel, indicating that the public is not spending or withholding cash. They are simply broke: And the overall GDP of the U.S. contracted in the fourth quarter of 2012 for the first time in three years (again, according to official numbers, meaning the reality is much worse):http://money.cnn.com/2013/01/30/news/economy/gdp-report/index.html The downturn in consumption and industry also seems to be supported by the Baltic Dry Index, a measure of global shipping and rates. The BDI has fallen to near historic lows THREE TIMES in the past year, which to my knowledge, has never happened before. In the past, the BDI has been a strong prophetic indicator of future market volatility. Usually, around a year after a severe decline in the index, a dangerous economic event takes place. The BDI made its first sharp drop to all time lows at the end of January 2012, exactly a year ago. U.S. household debt was recently reported to have fallen to a 29 year low, but the ratio used by the Federal Reserve applies a statistic for disposable income that is derived from the Trend Cycle boondoggle method. While markets cheer, the truth is, the only reason household debt obligations have fallen at all is because bank lending and credit issuance remains frozen. Consumer debt falls when there is no money to borrow. In fact, the Federal Reserve actually pays large banks NOT to lend to the public; an activity which was exposed by Dennis Kucinich in 2009 on the House Committee on Oversight and Government Reform. An activity that continued through 2012:http://economix.blogs.nytimes.com/2012/07/31/the-fed-should-stop-paying-banks-not-to-lend/ Keep in mind, one of the primary arguments the Federal Reserve used when promoting the bailout concept was that it would “free up credit markets” so that lending could pick up again and fuel a recovery, and yet, at the same time, they were paying banks to NOT lend. Meanwhile, the supposed job recovery has produced an astonishing increase in welfare recipients in the U.S., including a record 46 million Americans on foodstamps (approximately 15% of our population):http://www.nbcnews.com/business/report-15-americans-food-stamps-980690 If we are to apply any “trend” to our calculations on overall economic health, then we should include the extreme level of government handouts, and poverty levels which are now at all time highs. The facts are undeniable; the number of people who have much less than they did in 2008 has grown. How then could the U.S. be considered “in recovery”? National Debt And The Fiat Lie With the Dow Index hovering near highs of 14,000 our system truly looks to be on a rocket ship to pre-2008 money market bliss. In a mere five years we have returned to equity spikes that stagger the mind and the wallet. At least, that’s how it all appears… What needs to be taken into account, though, is the amount of fiat money being created by the Federal Reserve, and how much of that printed pixie dust currency is fueling our magical flight to Neverland. Since 2008, our official national debt has increased from $10 trillion to $16.4 trillion, and some estimate $17 trillion to $18 trillion by the end of 2013 (unless, of course, a collapse occurs). Which means our national debt, which took decades to reach the $10 trillion mark, will have nearly doubled in only six years! So, what has a doubling of our national debt in such a short span of time bought us? Well, credit markets remain frozen, property markets remain stagnant, poverty is at historic levels, welfare recipients are at epic highs, and consumer activity and GDP is back at 2008 lows. Where did all that printed money go? Where was it spent? To answer that question, we only need to find what area of the economy has seen the most positive (or fantastical) activity. What sector is seeing a massive boost while the rest tumbles? I suggest that a large portion of QE1 through QE3 has gone to prop up the stock market, and nothing else. I suggest that American taxpayers are fronting the bill for the equities bonanza we see today. I suggest that the Dow is being used as a Red Herring to distract the populous for as long as possible while real assets are being snapped up and hoarded by international banks and foreign entities. I suggest that we are being leached dry and that the parasites are almost ready to move on… When will it all end? Perhaps sooner than many people think. The decision by D.C. to delay talks on the so-called “Fiscal Cliff” until March may not be coincidence. Extensive cuts in federal spending are absolutely necessary and cannot be dismissed forever, but, because the last vestiges of our system that still operate do so through government money, such cuts will cause immediate damage to the economy, including possible default and dollar devaluation. Refusal to make cuts will result in credit downgrades, currency inflation, and a loss of the greenback’s world reserve status. There is no “right” way out of this quandary. When this collapse is initiated, it would certainly behoove all parties involved, including central banks, international banks, and criminal politicians, to have a scapegoat handy for the citizenry to direct their rage at. Event Horizon Economics An “Event Horizon” in physics is a moment or singularity in spacetime at which a gravitational pull becomes so great that there is no way to escape it. It is a point of no return. I believe America’s economy has reached its own Event Horizon. Our system is now entirely fiat driven, with very little or no true economy left. Without constant injections from the Fed, and perpetually low interest rates, the country would implode tomorrow. This is not recovery. Actually, I’m not sure what to call it. Today, independent economic analysts cannot look to the numbers to determine future trends. Most are fake, and the rest are ugly, and I’m not sure much else can be said in their regard. Instead, we must now look to events, rather than statistics, because our country has been maneuvered into a position of utmost frailty. Like an avalanche shelf waiting for that perfectly timed disturbance to trigger its roaring collapse. All that is needed is a macro-crisis, and it is no great feat for such a thing to be created in our tension filled global environment. War in Syria and Iran leading to a tripling of energy prices. Sanctions and strife with North Korea leading to Chinese economic retribution. Conflict between China and Japan, again leading to Chinese economic warfare and perhaps real warfare. An opportune “cyber attack” which could be used as an excuse for a market crash and even an internet shutdown. A “political impasse” between Reps and Dems which leads to a default of U.S. credit. Any one of these catastrophes could easily occur (with a little nudge from some well placed people) and feed a wider global tragedy. The important thing to remember is that while this event will be blamed for the breakdown, it was international banks, the Federal Reserve, and elements of our own government that made the domino effect possible. They put the pieces in place. The act that knocks them over is secondary. I have spent the past seven years writing about “potential” threats to our overall system, but these dangers were always just beyond our sight. Just around the corner. Today, it is as if the journey is over, and all those threats have materialized right before my eyes as real, and imminent. I am watching that which I warned of come to fruition, and this is certainly not a pleasant thing. What is valuable, though, is what we have all done in the Liberty Movement with the time that we had. From when I began writing for the movement until now, I have seen an overwhelming increase in public awareness. It may not be obvious to newer activists, but it is there all the same. While we still face disparaging odds, and millions upon millions of oblivious bystanders, there is, amidst these darker moments, a steadfast community of free men and women forming. I have full faith in the future. Much more so than I ever did before. Our economy may be detached from reality, but our endeavors as individuals will not be. Our resolve will be the great game changer. Not fiscal calamity.

Brandon Smith, ContributorActivist Post
Recently I was asked to give a presentation on the current state of the global economy to a local group of concerned citizens here in Northwest Montana. I was happy to oblige but when composing my bullet points I realized that, in truth, there were no legitimate economic numbers to examine anymore. You see, financial analysts have traditionally used multiple indicators of employment, profit, savings, credit, supply, and demand in their efforts to divine the often obscured facts of our financial system. The problem is, nearly every index we used in the past, every measure of capital flow and industry, is absolutely useless today.
We now live in an entirely fabricated fiscal environment. Every aspect of it is filtered, muddled, molded, and manipulated before our eyes ever get to study the stats. The metaphor may be overused, but our economic system has become an absolute “matrix”. All that we see and hear has been homogenized and all truth has been sterilized away. There is nothing to investigate anymore. It is like awaking in the middle of a vast and hallucinatory live action theater production, complete with performers, props, and sound effects, all designed to confuse us and do us harm. In the end, trying to make sense of the illusion is a waste of time. All we can do is look for the exits…There is some tangible reality out there, but it is difficult to find, and there are few if any mainstream numbers to verify. One has to remember always that the fundamental world of money and trade revolves around real people and real circumstances. No matter how corrupt our economic system is, as long as there are human beings, there will always be supply and demand that cannot be hidden. We have to look past the “official numbers” and look at the roots of trade. Where has demand fallen? Where has supply diminished? Where are the tangible goods and needs and how have they changed?
Let’s first start with the mainstream version of our system, looking at each aspect of the economy that no longer represents the truth of our situation…
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Employment, Savings, And Debt
Much of this information is old news to those of us in the Liberty Movement, who tracked the progress of the global collapse long before the general public even knew of its existence. However, it is useful to take a step back and look at the basic picture every once in a while.
According to numbers issued by the Department of Labor, weekly unemployment reports have dropped to a five year low, and the overall employment rate is holding at 7.9%. This would seem to be a vast improvement over the dreadful bloodletting in the system only a few years ago. Has the private Federal Reserve and the Obama Administration really done it? Have they turned back the tide on the greatest fiscal crisis the U.S. has seen since the Depression?
No. They haven’t.
They have only changed how the data is disseminated to the public. In order to understand how the employment statistics con is being engineered, it is important to understand the difference between “Adjusted” and “Unadjusted” numbers.
Labor Department data is “seasonally adjusted”, using a series of statistical assumptions including something called “Trend Cycle Analysis”. Trend Cycle Analysis is, basically, a sham, but a sham put together in a very complex and confusing manner. If you ask a mainstream economist what it is, you’ll likely get a three hour long dissertation filled with financial babble and very little concrete explanation. So let me break it down as simply as I can…Imagine that you are going to estimate how much profit you plan to make in a particular month, but you don’t just consider your current pay rate and pop it into a calculator; you also throw in the possibility of a few pay raises, an inheritance from a grandma who might kick the bucket, and, your exaggerated expectations of the entire year’s profit on top of that. You may also take into account future bad weather, a mugging, a nuclear war….whatever. All hypothetical situations not based in reality. Basically, you decide that a particular trend in your income is inevitable, then, mold your statistical analysis around that assumption.
When your real profit numbers come in (the unadjusted numbers) and they do not meet your expectations, you simply change them according to what you believe SHOULD have happened. If you insist that your profits are going to go up for the year, and they go down for a couple months instead, you change the variables you use to calculate the statistical average so that the results match your expectations, assuming that it will all balance out in the end.
Now, this sounds utterly insane for the common person out there trying to make a living. If you ran your household this way, without accepting the cold hard unadjusted numbers in front of you, you’d find yourself broke and on the street in no time. Unfortunately this is EXACTLY how our government handles most financial data; by coming to a final conclusion before hand, and then forcing the numbers to fit that conclusion.
This is why in February of 2013, “adjusted” first week unemployment rate was reported at 366,000 – a 5000 person drop from the week before. A seeming improvement in the trend. But, unadjusted numbers came in at 386,176 – a 16,000 person spike from the week before. When one examines real unemployment numbers, he finds that the divergence between the adjusted and unadjusted statistics is growing larger with each passing quarter. That is to say, the contradiction is becoming so blatant between the hard numbers and the Labor Department’s fantasy numbers that one must question whether or not the government is lying to us outright about the state of the economy (hint – they are lying).
These same methods are used by the government to calculate progress in the housing market, disposable income, etc.
The claim of “recovery” in the jobs market simply doesn’t jive with other indicators, like 2012 Christmas retail, which had the worst showing since the crash in 2008 (and these are still mainstream numbers!):
http://www.foxnews.com/us/2012/12/26/us-holiday-retail-sales-growth-weakest-since-2008/
Average household savings continue to scrape the bottom of the barrel, indicating that the public is not spending or withholding cash. They are simply broke:
And the overall GDP of the U.S. contracted in the fourth quarter of 2012 for the first time in three years (again, according to official numbers, meaning the reality is much worse):
http://money.cnn.com/2013/01/30/news/economy/gdp-report/index.html
The downturn in consumption and industry also seems to be supported by the Baltic Dry Index, a measure of global shipping and rates. The BDI has fallen to near historic lows THREE TIMES in the past year, which to my knowledge, has never happened before. In the past, the BDI has been a strong prophetic indicator of future market volatility. Usually, around a year after a severe decline in the index, a dangerous economic event takes place. The BDI made its first sharp drop to all time lows at the end of January 2012, exactly a year ago.
U.S. household debt was recently reported to have fallen to a 29-year low, but the ratio used by the Federal Reserve applies a statistic for disposable income that is derived from the Trend Cycle boondoggle method. While markets cheer, the truth is, the only reason household debt obligations have fallen at all is because bank lending and credit issuance remains frozen. Consumer debt falls when there is no money to borrow. In fact, the Federal Reserve actually pays large banks NOT to lend to the public; an activity which was exposed by Dennis Kucinich in 2009 on the House Committee on Oversight and Government Reform. An activity that continued through 2012:
http://economix.blogs.nytimes.com/2012/07/31/the-fed-should-stop-paying-banks-not-to-lend/Keep in mind, one of the primary arguments the Federal Reserve used when promoting the bailout concept was that it would “free up credit markets” so that lending could pick up again and fuel a recovery, and yet, at the same time, they were paying banks to NOT lend.
Meanwhile, the supposed job recovery has produced an astonishing increase in welfare recipients in the U.S., including a record 46 million Americans on foodstamps (approximately 15% of our population):
http://www.nbcnews.com/business/report-15-americans-food-stamps-980690
If we are to apply any “trend” to our calculations on overall economic health, then we should include the extreme level of government handouts, and poverty levels which are now at all time highs. The facts are undeniable; the number of people who have much less than they did in 2008 has grown. How then could the U.S. be considered “in recovery”?National Debt And The Fiat Lie
With the Dow Index hovering near highs of 14,000 our system truly looks to be on a rocket ship to pre-2008 money market bliss. In a mere five years we have returned to equity spikes that stagger the mind and the wallet. At least, that’s how it all appears…
What needs to be taken into account, though, is the amount of fiat money being created by the Federal Reserve, and how much of that printed pixie dust currency is fueling our magical flight to Neverland. Since 2008, our official national debt has increased from $10 trillion to $16.4 trillion, and some estimate $17 trillion to $18 trillion by the end of 2013 (unless, of course, a collapse occurs). Which means our national debt, which took decades to reach the $10 trillion mark, will have nearly doubled in only six years!
So, what has a doubling of our national debt in such a short span of time bought us? Well, credit markets remain frozen, property markets remain stagnant, poverty is at historic levels, welfare recipients are at epic highs, and consumer activity and GDP is back at 2008 lows. Where did all that printed money go? Where was it spent? To answer that question, we only need to find what area of the economy has seen the most positive (or fantastical) activity. What sector is seeing a massive boost while the rest tumbles?
I suggest that a large portion of QE1 through QE3 has gone to prop up the stock market, and nothing else. I suggest that American taxpayers are fronting the bill for the equities bonanza we see today. I suggest that the Dow is being used as a Red Herring to distract the populous for as long as possible while real assets are being snapped up and hoarded by international banks and foreign entities. I suggest that we are being leached dry and that the parasites are almost ready to move on…When will it all end? Perhaps sooner than many people think. The decision by D.C. to delay talks on the so-called “Fiscal Cliff” until March may not be coincidence. Extensive cuts in federal spending are absolutely necessary and cannot be dismissed forever, but, because the last vestiges of our system that still operate do so through government money, such cuts will cause immediate damage to the economy, including possible default and dollar devaluation. Refusal to make cuts will result in credit downgrades, currency inflation, and a loss of the greenback’s world reserve status. There is no “right” way out of this quandary.
When this collapse is initiated, it would certainly behoove all parties involved, including central banks, international banks, and criminal politicians, to have a scapegoat handy for the citizenry to direct their rage at.Event Horizon Economics
An “Event Horizon” in physics is a moment or singularity in spacetime at which a gravitational pull becomes so great that there is no way to escape it. It is a point of no return. I believe America’s economy has reached its own Event Horizon. Our system is now entirely fiat driven, with very little or no true economy left. Without constant injections from the Fed, and perpetually low interest rates, the country would implode tomorrow. This is not recovery. Actually, I’m not sure what to call it.
Today, independent economic analysts cannot look to the numbers to determine future trends. Most are fake, and the rest are ugly, and I’m not sure much else can be said in their regard. Instead, we must now look to events, rather than statistics, because our country has been maneuvered into a position of utmost frailty. Like an avalanche shelf waiting for that perfectly timed disturbance to trigger its roaring collapse. All that is needed is a macro-crisis, and it is no great feat for such a thing to be created in our tension filled global environment.
War in Syria and Iran leading to a tripling of energy prices. Sanctions and strife with North Korea leading to Chinese economic retribution. Conflict between China and Japan, again leading to Chinese economic warfare and perhaps real warfare. An opportune “cyber attack” which could be used as an excuse for a market crash and even an internet shutdown. A “political impasse” between Reps and Dems which leads to a default of U.S. credit. Any one of these catastrophes could easily occur (with a little nudge from some well placed people) and feed a wider global tragedy. The important thing to remember is that while this event will be blamed for the breakdown, it was international banks, the Federal Reserve, and elements of our own government that made the domino effect possible. They put the pieces in place. The act that knocks them over is secondary.
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I have spent the past seven years writing about “potential” threats to our overall system, but these dangers were always just beyond our sight. Just around the corner. Today, it is as if the journey is over, and all those threats have materialized right before my eyes as real, and imminent. I am watching that which I warned of come to fruition, and this is certainly not a pleasant thing. What is valuable, though, is what we have all done in the Liberty Movement with the time that we had. From when I began writing for the movement until now, I have seen an overwhelming increase in public awareness. It may not be obvious to newer activists, but it is there all the same. While we still face disparaging odds, and millions upon millions of oblivious bystanders, there is, amidst these darker moments, a steadfast community of free men and women forming. I have full faith in the future. Much more so than I ever did before. Our economy may be detached from reality, but our endeavors as individuals will not be. Our resolve will be the great game changer. Not fiscal calamity.You can contact Brandon Smith at:[email protected] is an organization designed to help you find like-minded activists and preppers in your local area so that you can network and construct communities for mutual aid and defense. Join Alt-Market.com today and learn what it means to step away from the system and build something better.To contribute to the growth of the Safe Haven Project, and to help us help others in relocating, or to support the creation of barter networks across the country, visit our donate page here: http://www.alt-market.com/donate
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Authored by Daniel Cloud, (A review of Mark DeWeaver’s Animal Spirits with Chinese Characteristics) Analysts who’ve only started paying attention to the country in the last decade often seem convinced that China has no real business cycle, or a very mild one, that because its economy is centrally planned, it’s free from the fluctuations in investment that cause booms and recessions in countries that lack the scientific guidance of a Leninist single-party state. This convenient belief, however, is mostly an artifact of the period over which they’ve been observing its economy. In what’s generally, since at least the 1950’s, been a short, very high-amplitude cycle with a roughly seven year period, the period between 1992 or 1993 and 2007 or 2008 is unique. It has a “soft landing” (or as DeWeaver calls it, a “long landing”) in its middle that was unlike any other slowdown China has experienced in its post-World-War II economic history. The boom of the early 1990’s wasn’t followed by the usual bust. Instead, after a fairly mild slowdown, another boom period began towards the end of the decade, without the usual deep cyclical trough between expansions. DeWeaver’s explanation of this anomaly suggests that it is unlikely to be repeated. We’re probably living, now, with a China that’s back to the sort of violent swings in economic activity, and repeated struggles with inflation, that have been characteristic of most of its recent history. To understand why, it’s necessary to understand his explanation of the nature of the cycle itself. In the economy of a country whose political system is some form of liberalism, changes in the level of productive activity are a consequence of changes in the level of investment by private companies, which presumably reflect changing perceptions of risk, and of potential rewards. In the Chinese economy, however, which, as DeWeaver convincingly demonstrates, is still very much dominated by enterprises in which some part of the government has a controlling stake, soft budget constraints and the primarily political motivations of most participants mean that calculations about risk often play little role in economic decision-making. In the pure “prestige projects” he describes in such Kafkaesque detail, even the idea of a reward is conspicuously absent. This state of affairs, DeWeaver tells us, is exacerbated by the Chinese style of economic planning, which emphasizes the achievement of quantitative targets for things like provincial GDP. In effect, the system is a series of tournaments, in which officials are repeatedly, throughout their careers, pitted against each other in a competition to see who can outperform the plan the most in each planning period. Along with this formal system of planning is an informal system of government by “the central legitimation of local elites”, in which decisions about how to meet the quantitative targets are left to provincial and lower-level authorities, though the supposedly uniform and transparent targets themselves come down from the top. What must also always come down from the top, DeWeaver tells us, is any impulse at all to rein in or slow the pace of expansion. Since officials at all levels are competing with each other to outperform any target they’ve been given, their incentives are entirely in favor of investing as much as possible whether it makes any sense to do so or not. Not only is this their best path to promotion – something everyone, after so many rounds of this game, certainly knows, by now – but more building means more opportunities to line your own pockets, by using companies you or your relatives own as contractors. The problem with the sort of frenzied construction of uneconomic steel mills and international airports and amusement parks and solar farms and palatial government buildings and so on that this impulse results in is that there really isn’t much about the process that would make it likely that the mix of goods and services the Chinese economy actually needed, to embark on the next stage of modernization, was the one that happened to be produced by it. What is far more likely to be produced is some other mix of goods, perhaps of acceptable quality, if quality was one of the explicit plan targets, but not really the right mix, because its composition is largely the result of short-term gaming of the planning system by the officials responsible for interpreting and implementing the plan, rather than any sort of general market equilibrium. Consequently, booms, in China’s post-war economic history, have tended to end in shortages of key commodities, or bouts of severe inflation, as the inappropriate mix of goods produced resulted in excess demand for the under-produced ones. The central planners have had no choice, at this point, but to tighten policy in various drastic and clumsy ways, so these booms almost always ended in busts. (Though not in the middle and late 1990’s.) Since the incentives for investment DeWeaver describes are insensitive to risk, however, many projects get carried on despite these contractions in activity and demand, so cyclical troughs have tended to be marked by extreme gluts of particular goods, pig iron or rolled steel or windmill farms or office buildings, often the ones most emphasized by the planners in the previous period. (As China’s economic miracle unfolded in the ‘80’s and ‘90’s, the tendency towards gluts seemed to have permanently eclipsed the tendency towards shortages - until, that is, towards the top of the last cycle in ’07 or ’08, suddenly everyone in the world began to talk about peak oil…) Aside from really spectacular ones like the Great Leap Forward, few of these booms and busts have been heard of by many people outside of China. Certainly few in the West now remember the so-called Great Leap Outward of the late 1970’s, though that was the precursor of everything that’s happened since. In that event, an economic expansion was prolonged slightly past the point when shortages would normally have forced its termination, by a policy of opening to the outside world, which allowed the import of scarce parts and supplies. Political sponsorship for the trade initiative came partly from the so-called “oil faction”, which had both hard currency, and a pressing need for outside help. The problem with this strategy, then, was the country’s lack of foreign exchange, and its chronic trade deficit. But if it could follow the same path as its capitalist East Asian neighbors, and use its highly literate and very inexpensive workforce to become an export powerhouse, the imperfections in the mix of goods and services the planning process always resulted in could be redressed in world markets. Under-produced goods could be imported, prolonging booms, and during cyclical troughs, overproduced goods could be exported. Market prices would be supplied to the Chinese economy from outside, giving planners some rough idea of what a genuine equilibrium would actually look like, and the imperfections in their estimations could be dealt with through trade. So that is what Deng Xiaoping and the rest of the people running things, after the Gang of Four were disposed of, decided to try to do. The move closer to an equilibrium mix of goods and services, and the ability to correct gluts and shortages by using world markets, greatly improved the efficiency with which scarce commodities were allocated, and laid the foundations for the economy’s boom years. (I suppose one could call this economic model “parasitic planning”, since it is central planning that relies on the existence of undistorted price information from the outside world for its viability, but it might make just as much sense to call it the “Japanese model”, given the level of planning MITI engaged in, back when its plans still mattered.) A certain amount of market liberalization, and the partial privatization of, first, agricultural, and then other kinds of land, added momentum to the long expansion. Most Westerners seem to be under the impression that exports were the “engine of growth” for China’s economy, in this period, that it’s demand from the outside world that has fuelled the rapid growth of the last two decades. The truth is more complicated. China is a large country, with a large economy, and value added to exported goods has never been a large enough fraction of GDP to directly account for very much of its growth. The real role of the export sector seems to have been the more complex one described above – it served as a guide to relative equilibrium prices, and a source and sink for under-produced or over-produced commodities. This role is not too different from that played by the Japanese export sector, during that country’s postwar period of rapid economic growth. In its early phases, DeWeaver tells us, there were some difficulties with the implementation of this strategy. Trying to build export industries without doing enough for domestic consumers led to renewed shortages and severe inflation in the late 1980’s, culminating in the demonstrations by workers and students in 1989, and their brutal suppression. But by the early 1990’s the plan was working. Exposure to the quality discipline of world markets, as well as the information about relative scarcities and marginal rates of substitution encoded in their prices, and the advanced technology of the capitalist world, along with some market liberalization in an economy that nevertheless remained dominated by the State, produced rapid gains in in productivity at the same time. Asset markets overheated in some parts of the decade, but goods markets never really got tight, and in the long slowdown, the almost infinite capacity of the foreign consumer to absorb Chinese goods meant that surplus production could be exported, rather than simply destroyed. In effect, China now seemed to face infinitely elastic supply and demand curves for every tradable good, and didn’t need to be anywhere near general equilibrium, in isolation, to experience the very rapid growth its highly educated and very inexpensive labor force made possible. Under these fortuitous but inherently temporary circumstances, the remarkably long expansion that took place between the early ‘90’s and ’07 or ’08, with a “long landing” in the middle, was possible – once. Why only once? There are two practical problems with the strategy in the longer term. The first is that you may well be building the wrong thing. Becoming a very specialized cog in the global manufacturing system, in this particular way, doesn’t quite seem to set you up for the transition to a knowledge society, perhaps because all you’ve had to do, to get to this point, is solve a bunch of engineering problems. You’ve got the external trappings of modernity – without a Parliament, or real laws, or a Newton, or independent universities, or genuine newspapers, or a working system for the protection of patents and other kinds of intellectual property, or any of the other vital organs of a real modern society… Because those things take a little longer to develop, and require a somewhat different political system. So there’s a transition needed, at this point, to another, rather dissimilar kind of society, and many new opportunities for failure, or very qualified success, along the way. Unfortunately, the sort of planning process DeWeaver is describing isn’t likely to ever result in transition even to a consumer economy, let alone a knowledge society, partly because all the incentives are skewed in the other direction, towards investment, not consumption, or the nurturing of individual creativity, towards the more Stalinist or Maoist approach of trying to use the sheer quantity of investment to make up for its poor average quality. The whole mechanism is designed to extract the consumer’s surplus, and use it for the goals of the State. In fact, what a consumer-driven economy must do is just exactly what such an economy doesn’t do. It doesn’t produce the things it consumes, and it doesn’t consume the things it produces, because it produces some rather arbitrary mix of goods, an artifact of a politicized planning process that is nowhere near the market clearing basket of goods and services. Perhaps more relevant to readers in the rest of the world, at the moment, however, is the other long-term problem with the strategy. Simply put, it’s that the price elasticity of demand and the price elasticity of supply for particular goods in the world economy aren’t ever actually infinite. Sooner or later, you will need so much oil, or copper, to continue growing at the same rate, or must export so many personal computers and televisions and phones and other useless little screens, that your own actions start to affect the prices of these commodities. You become so large, relative to the world, that it isn’t possible to analyze the world economy without taking your own actions into effect, any more - so the imbalances in your economy simply become imbalances in the economy of the world as a whole. The strategy of letting the outside world absorb your mistakes and correct your deficiencies can’t work any more, at that point, because there no longer is an actual “outside” world, there’s just the one globalized world you’re now the beating heart of. In retrospect, there was at least one unmistakable sign, in the second half of the last decade, that we had already reached this point with China. (Besides the apparently geometric increase in the number of useless little screens per American consumer.) As the impact of the country’s expected growth trajectory on global demand and supply became clearer, the price of oil continued to move up and up and up from its low of only a decade earlier, well below twenty dollars, to a price much closer to a hundred and fifty dollars a barrel. China’s absolute consumption of crude was still only half that of the United States, but with the Chinese economy growing so much more rapidly than any developed one, a very large fraction of the marginal addition to demand in each period was coming from it. There was no corresponding new source of supply. It was becoming obvious (to everyone but the people who make policy in developed countries, who seem to perceive only what organized interests encourage them to perceive) that things couldn’t go on like this indefinitely, that soon there wouldn’t be enough oil to go around. In the end, it was the price mechanism that adjusted demand to supply, by triggering a financial crisis that reduced consumers’ incomes, in the developed world, to a level consistent with a more stable oil price. Now, four years later, the world economy seems to be able to grow at whatever pace would keep the price of Brent below $110 – but not any faster than that. Each successive bout of monetary stimulus has had to be abandoned once the price gets much over that point. With that price now creeping up over $113 dollars per barrel, again, the Fed is already beginning to make unnerving comments about ending its now supposedly “eternal” commitment to QE a bit early, say later this year. They may have to. If they just blindly persisted in the stimulus, as they’ve previously threatened to, they’d be likely to simply push the price of oil up to a new all-time high, which would both cause another recession, and make the nature of the underlying problem painfully obvious to the voter, so it seems quite likely they’ll flinch, again, this time, in the end, just as they did on the last two occasions. The apparent inability of Western policymakers to even perceive the “super-spike” of oil prices in the summer of 2008, which immediately preceded and very probably precipitated the financial crisis in the United States later that year (by forcing low-income consumers to choose between buying gas and paying their mortgages) as an oil shock is somewhat bizarre, but the inappropriate nature of the policy response, which has mostly consisted of printing money, raises the suspicion that it reflects genuine confusion, and not the disingenuous refusal to engage with reality it looks like from the outside. Since the Fed never seems to have understood that an oil shock was the problem it encountered in 2008, in the first place, the thing that burst the housing bubble it had deliberately inflated, it may never have even occurred to them to worry about the growth of Chinese demand. Oil prices have stayed rather high for most of the period since, rising every time more monetary stimulus is applied, and then falling a bit when the authorities back off. The tightness in supply that has caused these high prices seems to have come as such a surprise to the rest of the world that they still have trouble seeing it as real. But for those of us who were already familiar with China’s business cycle, and aware of the growing contribution of Chinese growth to growth in the world economy as a whole, it is more or less what we expected. At this point, it is perfectly natural for the saw-toothed pattern of the normal Chinese business cycle to begin to superimpose itself on the longer, slower cycles of the Greenspan-era, US dominated world economy, because much of the growth in the world economy is now coming from China. In this scenario, shortages of key commodities at the top of the cycle, and gluts of certain other commodities at its bottom (including, sadly, labor) are just exactly what you’d expect to see. What is perhaps a bit more unexpected is the situation we’ve all seen in the last four years, when we’ve had both things – a glut of (rather artificially) cheap labor, and manufactured goods, and a simultaneous shortage of oil. It’s tempting to call this situation “stagflation”, but the official inflation rate, in the developed world, has remained fairly low. Partly this is an artifact of the way inflation is measured – basically all of the “growth” that the US economy has had in the last four years is a product of the hedonic adjustment, an unsatisfactory solution to an impossible measurement problem, which shows the inherent limits of economic analysis in general. But the Yuan’s peg to the dollar means that the Fed is also, in effect, making monetary policy for China, since the Chinese authorities must mirror the Fed’s actions to avoid changing the price of a Yuan in dollar terms. In China, the Fed’s policies have been much more inflationary. Wages and prices in the US are held down by competition from cheaper workers and lower-cost producers in China – but China itself has no such sink to dump its inflation on, so when Bernanke prints, to prop up the value of assets owned by rich consumers in the developed world, and finance the profligacy of the American State, it’s poor migrant workers in Wuhan who go without supper. This inflationary impact has been exacerbated by the response of China’s own economic policy-makers to the crisis. By 2008, after a decade and a half of rapid and relatively smooth growth, the institutional memory of the old business cycle had apparently been largely lost, as a result of the natural human tendency to assume that any good thing that lasts longer than originally expected will, therefore, last forever. Consequently, the response to the oil price super-spike of 2008 was not to tighten policy, as it might have been in previous iterations of the cycle. This was China’s moment in the sun, and nothing so trivial as brute facts about the scarcity of particular physical things could be allowed to mar it. Instead of tightening, the planners applied massive stimulus, mostly in the form of easier credit for whatever career-advancing (but quite probably uneconomic) projects local government officials wanted to start. The problem was apparently conceived of as one of managing another soft landing, and bringing forward the next leg of the long expansion. If many of the projects would have a very low return, in the end, well, the government could absorb any losses, and pass them on to taxpayers, or to depositors, once a long boom was again underway. (Like the US, China funds its bankers’ incompetence by encouraging them to collude in repressing returns to private savers.) Unfortunately, there was no protracted boom this time. There was only a relatively short one, peaking in 2009, which rather swiftly resulted in increased inflation. China’s exports were now so large, relative to the economies of its customers, that only increased, and increasingly distorting subsidies would produce any more growth on that front. The resource constraints epitomized by the global oil price (although other vital commodities – clean air, for example – were becoming scarce as well) couldn’t be made to go away just by printing money, as they could have been when the price elasticity of supply for the commodities China imports was effectively infinite, back in the ‘90’s. As a result, this last cyclical upswing was unusually short – the authorities had to start tightening again after only a year or two of renewed expansion. That meant that the hope that the eventual losses resulting from the low-quality local-government projects undertaken as stimulus could easily be absorbed by the banks (or rather, their depositors) during another long boom was revealed as a forlorn one. Eager to get rid of these increasingly dangerous white elephants, the banks began securitizing the loans they’d made to these projects in the form of “wealth management products” that would allow individuals to take over the loans, and earn a higher interest rate than they could with a bank account. Local government projects that were on the verge of default could simply sell more bonds to the trusts associated with these WMP’s. Of course, they would then have to sell even more bonds, at some later point, to some other WMP trust, to pay off the interest and principal on those bonds, but that was a problem for later… In 2012, loans made by these sorts of trusts, according to UBS, made up almost half of all credit extended in China. Few people outside of the country seem to have quite focused on the inevitable compounding of loans to pay the interest of loans to pay the interest on loans to un-economic projects that this implies, but the problem, considered in terms of the share of the banking system that’s involved in it, is obviously much worse than the sub-prime problem ever was in the US. It has all of the features of a classic financial crisis, since the WMP’s, in the final analysis, are probably mostly just complex Ponzi schemes. While money was still flowing out of bank accounts and into WMP’s, the game could keep going, but now that almost half the bank accounts have been used up in this way, there’s nothing left in the cookie jar. A ponzi scheme always collapses once there’s no new money left to be sucked into it, and we seem to be close to that point, so the short-term outlook isn’t bright. An anomalously long expansion, in the ‘90’s and the first three quarters of the next decade, was followed by an anomalously short one, because of an inappropriate policy response based on expectations built up during the long expansion. The new short cycle may still have another bounce left in it, if we’re lucky, but given the rate at which WMP loans are growing, a financial crisis or panic, somewhat analogous to the events in Japan at the beginning of the 1990’s, seems equally likely as an immediate outcome. Even if the authorities do find some way to print enough money to get out of this particular trap, though, from a longer-term perspective, the illusion of a smooth and uninterrupted growth trajectory is now over. If the Chinese economy can continue growing rapidly at all, in the face of persistently high oil prices and the incompetence of the country’s policy makers, it will now once again begin to do so in a saw-toothed way, with each peak marked by a spike in world oil prices (which will eventually explore new highs) and each trough marked by more exported unemployment, as the country continues to try to dump its mistakes in management onto an already-crumpling world economy. The problem with Deng Xiaoping’s plan is that it has succeeded – not in permanently solving the Chinese economy’s problem with the wildness of its tutelary animal spirits, but in sharing that problem with the rest of us, so we can all have the pleasure of living with the colorful though inconvenient consequences of Maoist central planning. The remarkable lack of interest in China’s business cycle, by analysts outside the country – many China “experts” seem locked into the role of permanent booster or apologist, or else of perennial Sinophobe, and miss such tiny nuances as the violent fluctuations that have typified the post-war history of the world’s second largest economy – make Deweaver’s book, and its explanation of the nature and causes of those cycles, a very useful one, perhaps the most useful book on the subject to come out since Gavin Peebles’ masterful Money in the PRC. The book’s only major defect – one it shares with many of the products of publishers like Palgrave – is its price, which puts it out of the reach of the casual reader. But if understanding the cycles and likely future of China’s economy is actually an urgent practical problem for you, it may be worth investing in a copy anyway. The book is available from Amazon; the URL is http://www.amazon.com/Animal-Spirits-Chinese-Characteristics-investment/...

Authored by Raghuram Rajan, originally posted at Project Syndicate, Two fundamental beliefs have driven economic policy around the world in recent years. The first is that the world suffers from a shortage of aggregate demand relative to supply; the second is that monetary and fiscal stimulus will close the gap. Is it possible that the diagnosis is right, but that the remedy is wrong? That would explain why we have made little headway so far in restoring growth to pre-crisis levels. And it would also indicate that we must rethink our remedies. High levels of involuntary unemployment throughout the advanced economies suggest that demand lags behind potential supply. While unemployment is significantly higher in sectors that were booming before the crisis, such as construction in the United States, it is more widespread, underpinning the view that greater demand is necessary to restore full employment. Policymakers initially resorted to government spending and low interest rates to boost demand. As government debt has ballooned and policy interest rates have hit rock bottom, central banks have focused on increasingly innovative policy to boost demand. Yet growth continues to be painfully slow. Why? What if the problem is the assumption that all demand is created equal? We know that pre-crisis demand was boosted by massive amounts of borrowing. When borrowing becomes easier, it is not the well-to-do, whose spending is not constrained by their incomes, who increase their consumption; rather, the increase comes from poorer and younger families whose needs and dreams far outpace their incomes. Their needs can be different from those of the rich. Moreover, the goods that are easiest to buy are those that are easy to post as collateral – houses and cars, rather than perishables. And rising house prices in some regions make it easier to borrow even more to spend on other daily needs such as diapers and baby food. The point is that debt-fueled demand emanates from particular households in particular regions for particular goods. While it catalyzes a more generalized demand – the elderly plumber who works longer hours in the boom spends more on his stamp collection – it is not unreasonable to believe that much of debt-fueled demand is more focused. So, as lending dries up, borrowing households can no longer spend, and demand for certain goods changes disproportionately, especially in areas that boomed earlier. Of course, the effects spread through the economy – as demand for cars falls, demand for steel also falls, and steel workers are laid off. But unemployment is most pronounced in the construction and automobile sectors, or in regions where house prices rose particularly rapidly. It is easy to see why a general stimulus to demand, such as a cut in payroll taxes, may be ineffective in restoring the economy to full employment. The general stimulus goes to everyone, not just the former borrowers. And everyone’s spending patterns differ – the older, wealthier household buys jewelry from Tiffany, rather than a car from General Motors. And even the former borrowers are unlikely to use their stimulus money to pay for more housing – they have soured on the dreams that housing held out. Indeed, because the pattern of demand that is expressible has shifted with the change in access to borrowing, the pace at which the economy can grow without inflation may also fall. With too many construction workers and too few jewelers, greater demand may result in higher jewelry prices rather than more output. Put differently, the bust that follows years of a debt-fueled boom leaves behind an economy that supplies too much of the wrong kind of good relative to the changed demand. Unlike a normal cyclical recession, in which demand falls across the board and recovery requires merely rehiring laid-off workers to resume their old jobs, economic recovery following a lending bust typically requires workers to move across industries and to new locations. There is thus a subtle but important difference between my debt-driven demand view and the neo-Keynesian explanation that deleveraging (saving by chastened borrowers) or debt overhang (the inability of debt-laden borrowers to spend) is responsible for slow post-crisis growth. Both views accept that the central source of weak aggregate demand is the disappearance of demand from former borrowers. But they differ on solutions. The neo-Keynesian economist wants to boost demand generally. But if we believe that debt-driven demand is different, demand stimulus will at best be a palliative. Writing down former borrowers’ debt may be slightly more effective in producing the old pattern of demand, but it will probably not restore it to the pre-crisis level. In any case, do we really want the former borrowers to borrow themselves into trouble again? The only sustainable solution is to allow the supply side to adjust to more normal and sustainable sources of demand – to ease the way for construction workers and autoworkers to retrain for faster-growing industries. The worst thing that governments can do is to stand in the way by propping up unviable firms or by sustaining demand in unviable industries through easy credit. Supply-side adjustments take time, and, after five years of recession, economies have made some headway. But continued misdiagnosis will have lasting effects. The advanced countries will spend decades working off high public-debt loads, while their central banks will have to unwind bloated balance sheets and back off from promises of support that markets have come to rely on. Frighteningly, the new Japanese government is still trying to deal with the aftermath of the country’s two-decade-old property bust. One can only hope that it will not indulge in more of the kind of spending that already has proven so ineffective – and that has left Japan with the highest debt burden (around 230% of GDP) in the OECD. Unfortunately, history provides little cause for optimism.

Perhaps the most fundamental truth of monetary economics that the government can always boost (or reduce) the flow of spending, and in a sticky-price world thus drive the flow of production and employment wherever it wants. As Ben Bernanke said, as a last resort to increase production and employment the government can simply throw money out of helicopters--less picturesquely, cut taxes and print cash to fill the resulting deficit, or to get a little more umph buy extra stuff and thus put some extra unemployed people to work in the process of getting the money out into the economy. Expansionary fiscal and expansionary monetary policy together trigger a rise in the circular flow of nominal spending, and unless price expectations are unanchored and prices flexible enough that 100% of that rise shows up as higher inflation, the greater circular flow puts more people to work making more stuff.
Economists fight over what happens when you do one of the two--when you just do a monetary expansion buying government bonds for cash (because people might not spend their extra cash but hoard it as a savings vehicle), or when you just do a fiscal expansion buying stuff or cutting taxes and paying for it not by printing money but by selling bonds (because purchases of government bonds that crowd-out purchases of private bonds simply shift demand away from private investment). Economists fight over what share of the increase in the nominal circular flow will show up as higher prices as opposed to higher output--over what the natural rate of unemployment is, and how it was affected by the crisis.
But back in 2007 I would have said that every macroeconomist who has done any homework at all believes that coordinated monetary and fiscal expansion together increase at least the flow of nominal GDP.
Now comes the very smart Raghu Rajan to say, apparently, not so:
Why Stimulus Has Failed: Two fundamental beliefs have driven economic policy around the world in recent years… the world suffers from a shortage of aggregate demand… [and] monetary and fiscal stimulus will close the gap. Is it possible that the diagnosis is right, but that the remedy is wrong?…
High levels of involuntary unemployment throughout the advanced economies suggest that demand lags behind potential supply…. What if the problem is the assumption that all demand is created equal?… When borrowing becomes easier… the increase [in demand] comes from poorer and younger families whose needs and dreams far outpace their incomes…. Moreover, the goods that are easiest to buy are those that are easy to post as collateral – houses and cars, rather than perishables…. [D]ebt-fueled demand emanates from particular households in particular regions for particular goods…. [A]s lending dries up, borrowing households can no longer spend, and demand for certain goods changes disproportionately, especially in areas that boomed earlier….
It is [then] easy to see why a general stimulus… may be ineffective…. The general stimulus goes to everyone, not just the former borrowers… the older, wealthier household buys jewelry from Tiffany, rather than a car from General Motors…. Indeed, because the pattern of demand that is expressible has shifted with the change in access to borrowing, the pace at which the economy can grow without inflation may also fall…. Unlike a normal cyclical recession, in which demand falls across the board and recovery requires merely rehiring laid-off workers to resume their old jobs, economic recovery following a lending bust typically requires workers to move across industries and to new locations.
There is thus a subtle but important difference between my debt-driven demand view and the neo-Keynesian explanation that deleveraging (saving by chastened borrowers) or debt overhang (the inability of debt-laden borrowers to spend) is responsible for slow post-crisis growth. Both views accept that the central source of weak aggregate demand is the disappearance of demand from former borrowers. But they differ on solutions. The neo-Keynesian economist wants to boost demand generally…. [I think] only sustainable solution is to allow the supply side to adjust to more normal and sustainable sources of demand – to ease the way for construction workers and autoworkers to retrain for faster-growing industries. The worst thing that governments can do is to stand in the way by propping up unviable firms or by sustaining demand in unviable industries through easy credit. Supply-side adjustments take time…. But continued misdiagnosis will have lasting effects…
From my perspective, what Raghu is doing is saying that if we were to undertake more aggressive coordinated monetary and fiscal expansion we would hit the inflation wall sooner than I think likely--that the difficulties of retraining and readjustment mean that the division of the increase in the flow of spending would soon shift to 100% inflation, 0% extra production. Perhaps it will. But we have not gotten there yet. We are still in a world where the flow of nominal GDP in the North Atlantic is some six percentage points below its pre-2008 trend.
Fix that trend of nominal GDP first via coordinated monetary and fiscal expansion, and then we will examine the division at the margin of PY into P and Y, and talk…

According to Gaius Suetonius Tranquillus, a favorite saying of first-century Roman emperor Gaius Julius Caesar Augustus Germanicus "Caligula"…
Justin Wolfers tweets:
Sympathetic to @davidmwessel's view that Krugman & @delong can be too quick to call him a fool for citing their ideological opponents.— Justin Wolfers (@justinwolfers) January 5, 2013
I protest. Go to Google, enter "site:delong.typepad.com 'david wessel'" into the search box, press "I'm feeling lucky", and what comes up is:
Brad DeLong : David Wessel's You Are There: Ben Bernanke Five Years Ago Today: David Wessel alone is worth the price of the Wall Street Journal…
In fact, going further down the list of results:
Results (2) and (3) are simply (implicitly approving) quotes from Wessel's columns;
Result (4) is an attempt by me to defend myself against Wessel's charge that I do not understand that Herbert Hoover is an unreliable narrator;
Result (5)… (5) does implicitly take David to task for quoting without discussion Liaquat Ahmed's claim that in 2009 "no Keynesians or even monetarists ever realized that the numbers to make their policies work are so gigantic" (which I believe is not true) and assigning Robert Barro to the set of ""advocate[s] of the earlier fiscal and monetary stimulus" (which I think needs more nuance);
Result (6)… (6) quotes Duncan Black saying "Shorter David Wessel: 'The hippies are like so totally wrong about everything, but here's my plan in the WSJ to implement the hippie agenda.' That's a bit of an unfair characterization, but I wish pundits could just say 'here's what should be done' without pretending to float above everyone else who is wrong";
Result (7) is another (implicitly approving) quote;
Result (8) is an entirely approving explication of something Wessel had written in very compressed form;
Result (9) is made up of my notes for a Barclays-sponsored conversation with Wessel; and
Result (10) is another (implicitly approving) quote.
I understand that it is probably good for the world to have David Wessel looking over his shoulder and wondering "am I giving appropriate context to these people I am quoting?" I do think that whenever he finds himself writing something like:
How to Get the U.S. Recovery Back on Track: One set of physicians, the Keynesians, are sure their medicine worked, but the dosage was insufficient. They prescribe more stimulus, perhaps extending a payroll tax holiday that is to expire at year-end, as President Barack Obama proposes. Another set, influential among Republicans, is just as sure the medicine didn't work. They prescribe the opposite: Starve the fever—cut spending significantly and soon. A third set, influenced by professors Kenneth Rogoff and Carmen Reinhart's history of financial crises, says deleveraging is like detox: Painful, takes time and can't be rushed…
he should at least pause and think whether that is not too close to "opinions of shape of earth differ" journalism.
But I do have the most enormous respect for David. And I really do think he is much more likely to read "David Wessel alone is worth the price of the Wall Street Journal" than he is to read me calling him a fool for quoting my ideological opponents.
Unless he gives me reason.
As long as he quotes my ideological opponents in enough context for his uninformed readers to understand what fools they are.
Top ten hits on Google for "site:delong.typepad.com 'david wessel'":
(1) Brad DeLong : David Wessel's You Are There: Ben Bernanke Five Years Ago Today: David Wessel alone is worth the price of the Wall Street Journal:
Oops: What Bernanke Said Five Years Ago Today: Five years ago, July 18, 2007, Federal Reserve Chairman Ben Bernanke testified before the House Financial Services Committee as he is today. The housing bubble was bursting, cracks in the global financial system were just beginning to appear, but Bernanke didn’t sound terribly worried or prescient…
(2) Brad DeLong : David Wessel Writes About CEO Pay (no comment on Wessel article, just long quotes that violate "fair use" principles due to my laziness at excerpting)
(3) David Wessel: Fed Paying Interest on Reserves: A Primer (no comment on Wessel article, just long quotes that violate "fair use" principles due to my laziness at excerpting)
(4) Brad DeLong : DeLong Smackdown Watch (David Wessel/Marx-Schumpeter-Hoover-Mellon Axis Edition): On page 46 of David Wessel (2009), In Fed We Trust: Ben Bernanke's War on the Great Panic (New York: Crown: 9780307459688), I read:
This notion of the government's [macroeconomic stabilization] role was not universal in the 1930s. In his memoirs, Herbert Hoover described tension within his own administration, putting words into Treasury Secretary Andrew Mellon's mouth that are routinely reported as something Mellon actually said:
In one camp were the "leave it alone liquidationts" headed by Secretary Mellon, who felt that government must keep its hands off and let the slump liquidate itself. Mr. Mellon had only one formula: "Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate." He held that even panic was not altogether a bad thing. He said: "It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people"...
Who is it "routinely reports" something like this? Moi!
This is actually a difficult question, which I hope to write up properly someday:
Hoover in his memoirs is definitely an unreliable narrator. He sets himself up as opposing Mellon within the administration, when actually when push came to shove he (reluctantly) supported Mellon.
As Wessel notes on page 47, he gave himself in the early 1930s excessive vision as to the size of the problem. And he claimed that he had nothing to do with the MacArthur-Eisenhower-Patton military police action against the Bonus Marchers on the Mall.
Hoover's unreliability centers around two issues: (a) Hoover insists--no matter what the evidence--that everything was going fine and the depression was licked until the election of THAT COMMUNIST ROOSEVELT; (b) any mistakes made during his administration were the fault of unworthy subordinates--MacArthur, Mellon--who misled Hoover….
Hoover is an unreliable narrator. But odds are that his claims that, internally, Mellon was a liquidationist are sound.
(5) Brad DeLong : David Wessel Says: It Is 1931 Again: David Wessel:
The Perils of Ignoring History: There is an optimistic scenario for the U.S. economy: Europe gets its act together. The pace of world growth quickens, igniting demand for U.S. exports. American politicians agree to a credible compromise that gives the economy a fiscal boost now and restrains deficits later. The housing market turns up. Relieved businesses hire. Relieved consumers spend. But there are at least two unpleasant scenarios: One is that Europe becomes the epicenter of a financial earthquake on the scale of the crash of 1929 or Lehman Brothers 2008. The other is that Europe muddles through, but the U.S. stagnates for another five years, mired in slow growth, high unemployment and ugly politics…. No one would intentionally choose the second or third, yet policy makers look more likely to stumble into one of those holes than find a path to the happier ending.
Why? Liaquat Ahamed has been pondering that question…. "Is it because people don't know what to do (or there's disagreement about what to do)," he wonders, "or is it the politics, particularly the reluctance to ask some people to pay for the mistakes of others?"… Mr. Ahamed sees another, largely unappreciated lesson from the '20s. The few moves in the right direction then were too small for the scale of the economic disaster…. In our time, says Mr. Ahamed, "I don't think Keynesians or even monetarists ever realized that the numbers to make their policies work are so gigantic. Everyone had sticker shock."…
As best as I can see, Liaquat Ahamed's claim that "no Keynesians or even monetarists ever realized that the numbers to make their policies work are so gigantic. Everyone had sticker shock…" is simply wrong. I know that I was talking in April 2008 about how we wanted to be ready to nationalize Fannie and Freddie and use them to refinance every single mortgage in the country if it should become necessary. Christina Romer and Jared Bernstein could do the math on the demand gap in late 2008 and early 2009, and did so.
The monetarists are harder. Some--Lars Svensson, Michael Woodford, and Scott Sumner come immediately to mind--seem to have known well how much less effective open-market operations are once you hit the zero nominal bound, how large the scale of operations have to become, and how it is (we think) much better not to announce volumes of bond purchases but instead to try to engage stabilizing speculation on your side by announcing that you are targeting the forecast. Others did not seem to get it, and still do not seem to get it.
And I gotta protest David Wessel's claim that Robert Barro was an "advocate of the earlier fiscal and monetary stimulus". I remember Robert Barro in January 2009:
Robert J. Barro: Government Spending Is No Free Lunch: A much more plausible starting point is a multiplier of zero…. I can understand various attempts to prop up the financial system. These efforts, akin to avoiding bank runs in prior periods, recognize that the social consequences of credit-market decisions extend well beyond the individuals and businesses making the decisions. But, in terms of fiscal-stimulus proposals, it would be unfortunate if the best Team Obama can offer is an unvarnished version of Keynes's 1936 "General Theory of Employment, Interest and Money."… [W]e should not be considering massive public-works programs that do not pass muster from the perspective of cost-benefit analysis…
(6) Brad DeLong : David Wessel Joins the Hippies Who Have Been Calling for More Aggressive Economic Stimulus for... 2 3/4 Years Now: David Wessel:
How to Get the U.S. Recovery Back on Track: The U.S. economy resembles a patient who survived a heart attack, and tells his doctor: "I took your advice, swallowed the pills and I still don't feel well." We were warned the post-recession recovery, now marking its second anniversary, would be painfully slow. It's worse…. One set of physicians, the Keynesians, are sure their medicine worked, but the dosage was insufficient. They prescribe more stimulus.... Another set, influential among Republicans, is just as sure the medicine didn't work. They prescribe the opposite: Starve the fever—cut spending significantly and soon. A third set, influenced by professors Kenneth Rogoff and Carmen Reinhart's history of financial crises, says deleveraging is like detox: Painful, takes time and can't be rushed…. If the president and Congress want to slip some growth-inducing remedies into the pending deficit deal, what should they examine with an unjaundiced eye?…
Duncan Black wishes for some recognition that some of us have been on this case--although howling at the dead, uncaring stars, for all the good we have done--for 31 months now:
Eschaton: Shorter David Wessel: "The hippies are like so totally wrong about everything, but here's my plan in the WSJ to implement the hippie agenda." That's a bit of an unfair characterization, but I wish pundits could just say "here's what should be done" without pretending to float above everyone else who is wrong.
(7) David Wessel: Geithner Made Simple (no comment on Wessel article, just a quote that for once does not violate "fair use" principles)
(8) Brad DeLong : "Show Me the Collateral" Blogging: One of the Three Major Market Failures Underlying Our Current Difficulties…: …is the extraordinary demand on the part of investors for "safe" assets--and the concomitant failure of financial markets to mobilize the risk-bearing capacity of the global economy to bear risk/provide safety. David Wessel on demand and supply for "safe" assets:
World's Supply of 'Safe' Assets Runs Short: The world economy faces a shortage of super-safe financial assets, bonds for which there is almost no risk of default and for which the market is so big that investors can buy and sell them readily. When anything is in short supply, its price rises. The bond market is no exception. It has been pushing up the price of U.S. Treasurys, still seen as safer than nearly all alternatives….
This is the point that Cardiff Garcia illustrates with the
unwanted mutant offspring of the most important chart in the world…
In a way, it is a product of trust--or, rather, of the absence of same. Markets in which people do not trust each other are subject to adverse selection problems: they collapse, or function badly. It is the purpose of institutions, especially financial institutions, to substitute for the trust that does not exist. And when the financial underpinnings needed to substitute for trust are not present, the macroeconomy can go badly awry as well.
Consider something as simple as market exchange. My wife's and my earning power right now is not quite enough to exclude us from the 99%…. Yet somehow we can't just go to the store, pick things out, and tell the cashier: "We'll owe it to ya. We're good for it." (Indeed, the only person in this Fallen Sublunary Sphere willing right now to lend us unsecured money for a more-than-30-day term is Tom Goldstein, and he is probably getting antsy about his $40 right now…). However, it is not just cash money that an economy needs to possess in sufficient quantities to substitute for the absence of trust in spenders. Spenders give you money in order to substitute for trust. But consider businesses seeking to borrow and invest…. What they need to give you, instead of the cash that you are giving them, is savings vehicles--bonds--of sufficient expected value. Economies can have a shortage of savings vehicles as well as of cash, and can suffer Wicksellian as well as monetarist recessions. Last, there are a whole set of transactions in which what the counterparty wants is not your cash or your bond to substitute for nonexistent trust, but rather some safe and liquid collateral: a particular, peculiar bond that they are confident will maintain its (nominal, at least) value at maturity and that they are confident everybody else will be confident will maintain its (nominal, at least) value at maturity so that it will be useful as a means of raising cash in a hurry now. That's what AAA assets are good for. And when an economy is short of AAA assets, it can fall into a recession--but not a monetarist or a Wicksellian recession, rather an Minskyite recession…
(9) Brad DeLong: Barclays Debate with Robert Barro, Moderated by David Wessel: My Draft Opening Statement: WESSEL: 'If President Obama invited you into the Oval Office, told you that he recognized that the economic policies he has pursued to date haven't had the desired outcome, and gave you five minutes to tell him what in your opinion he should do now (setting aside whether Congress would go along)?" DELONG: "I would say: Mr. President: When you took office, you quickly became convinced for some reason that we were going to see a rapid, V-shaped recovery. Hence you took your task to be (a) stopping the panic, (b) recapitalizing the banking system, and (c) filling in a good chunk of the demand gap with the Recovery Act. Then, you thought, the task of macroeconomic stabilization would be finished. And so you turned your attention to (i) health care reform, (ii) financial regulation, (iii) long-run budget balance, and other issues.
"This was wrong. We do not have a V but rather an L. Our expectations that the market was strong enough to return the economy to its long-run full-employment configuration within a couple of years--perhaps with assistance from the Federal Reserve--was wrong. The short run of slack aggregate demand, high unemployment, and low capacity utilization looks as though it will last not two to three years after the downturn begin but five to ten years--or more."
(10) (10) Brad DeLong : David Wessel Says: The "Somebody Must Suffer" Caucus Should Chill (no comment on Wessel article, just a quote that for once does not violate "fair use" principles)

When it comes to the main sovereign story of 2011 and 2012, namely the endless bailout of Greece, now in its third iteration, the conventional wisdom is that courtesy of the near elimination of the country's private sovereign debt and the fact that its official foreign debt held by benevolent taxpayer funded globalist powers (IMF, ECB, EFSF) has been mostly converted into a zero-coupon, perpetual piece of paper, the country is fine. After all it has no debt interest expense to finance, and the only shortfall it has to plug is that created by its primary budget deficit (which as we showed earlier is "improving" on a year over year basis not because the economy is improving, but because the Greek government is simply refusing to pay its bills). So there is nothing more to do but sit back and wait while the economy slowly recovers, the unprecedented internal imbalance with Germany is gradually aligned, are the unemployment rate drops, (while hoping that the population does not die out first) right? Wrong. What everyone is forgetting is that the heart of the Greek problem is not the Greek sovereign debt, and certainly not the rate of interest, but the fact that Greece's financial system, i.e. its banks, are utterly insolvent: and with the private banking system no longer creating money by handing out loans to a just as insolvent broader population (and the ECB certainly no longer injecting direct liquidity into the Greek economy) there is little that supports any form of economic growth (the Austrians out there will immediately recognize the problem: if money is not being created, the economy is not "growing", period). After all there is a reason why of the countless billions in Greek bailouts, of which the majority was used primarily to fund interest and maturity payments to other banks such as Deutsche Bank, the biggest portion that remained on the ground in Greece never made it to the actual people, but served to prop up the Greek banks, some €50 billion. What was this money used for? Simply said, to plug capitalization shortfalls arising from one of two things: i) a gigantic outflow of deposits from the local banking system, as Greek lost all confidence their money was safe in the local banks, which meant Greek banks had to promptly find the money to pay their depositors lest a countrywide bank run developed which would then result in a Europe-wide financial panic, and ii) the soaring notional amount of non-performing "bad" loans, which remained as placeholders on the bank balance sheets, market at whatever mythical number the local accounts let the banks mark them at, but which generated zero inbound cash flows. Which, incidentally, would mean that deposits were undercollaterialized, and the realization that NPL levels are stratospheric and going higher, would lead to i) and the appropriate dire consequences. Which brings us to the topic of today's post. Moments ago Kathimerini reported that in 2012, the amount of non-performing loans has exploded by a laughable amount, rising some 50% from December 2011, when it was "only" 16% and stood at a gargantuan 24% last month (indicatively, in the US this would mean that some $1.7 trillion in loans was nonperforming). And therein lies the rub, because as Kathiermini prudently notes, the "bad loans come to a considerable 55 billion euros. This means that the sum of NPLs already exceeds the total funds set aside for the recapitalization of the local credit system, which amounts to €50 billion." Oops. This means that not only every single euro allotted for the bailout of the Greek banking sector has been used up to plug a gaping NPL shortfall, but already Greece is €5 billion short. Sure enough, the last thing Kathimerini would want to do is give people the impression that, once again, their deposits are effectively impaired with the soothing proclamation that "there has been a notable improvement in economic conditions that is reflected in the significant slowdown in the rate of creation of new bad loans." So 16% to 24% is a slow down? Maybe the fact that Greek unemployment is rising at "just" 1% of total each month is also a "notable improvement." No, we doubt Kathimerini would be so audacious to proclaim the above chart of Greek unemployment as "notably improving". But that's a problem, because the level of NPL, the level of unemployment, and the general state of the economy (whose Q3 GDP imploded by 7.2%, the worst quarterly drop following a 6.7% GDP decline in Q1, and 6.3% in Q2) are closely linked, and one can't improve without the other. And usually the catalyst the drives an overall bounce in the economy is some endo- or exogenous source of money demand and creation (usually for nations in depression it involves war). Absent that, there can be no improvement. Which, following the preceding optimism, is precisely what the Kathimerini author admits: "However, unless the growth of new NPLs is contained, banks may need yet another recapitalization process at the end of 2013, the same sources say." In other words, dear Germans, the country that you, and everyone else, though is now saved and needs no more bailouts, at least according to the current Finance Minister, not the previous one who now it appears was avoiding paying his taxes like the plague (ah yes, the Greek tax collections "issue" - a fun topic for another day), is already down €5 billion and in need of bailout Number 4. Expect this news to be sprung on a witless Germany in the coming months, but most likely not before the Merkel reelection. After all the last thing Germany needs to understand is that the hundreds of billions "invested" to preserve the Eurozone have achieved precisely nothing, and the gaping black hole is bigger and blacker than ever before. But at least the hedge funds who bought worthless Greek bonds at 15 cents on the euro and made three times their money in three month, are happy. Everyone else, i.e. the Greek people, good luck. For the fourth time.

When it comes to the main sovereign story of 2011 and 2012, namely the endless bailout of Greece, now in its third iteration, the conventional wisdom is that courtesy of the near elimination of the country's private sovereign debt and the fact that its official foreign debt held by benevolent taxpayer funded globalist powers (IMF, ECB, EFSF) has been mostly converted into a zero-coupon, perpetual piece of paper, the country is fine. After all it has no debt interest expense to finance, and the only shortfall it has to plug is that created by its primary budget deficit (which as we showed earlier is "improving" on a year over year basis not because the economy is improving, but because the Greek government has simply refused to pay its bills). So there is nothing more to do but sit back and wait while the economy slowly recovers, the unprecedented internal imbalance with Germany is gradually aligned, are the unemployment rate drops, (while hoping that the population does not die out first) right? Wrong. What everyone is forgetting is that the heart of the Greek problem is not the Greek sovereign debt, and certainly not the rate of interest, but the fact that Greece's financial system, i.e. its banks, are utterly insolvent: and with the private banking system no longer creating money by handing out loans to a just as insolvent broader population (and the ECB certainly no longer injecting direct liquidity into the Greek economy) there is little that supports any form of economic growth (the Austrians out there will immediately recognize the problem: if money is not being created, the economy is not "growing", period). After all there is a reason why of the countless billions in Greek bailouts, of which the majority was used primarily to fund interest and maturity payments to other banks such as Deutsche Bank, the biggest portion that remained on the ground in Greece never made it to the actual people, but served to prop up the Greek banks, some €50 billion. What was this money used for? Simply said, to plug capitalization shortfalls arising from one of two things: i) a gigantic outflow of deposits from the local banking system, as Greek lost all confidence their money was safe in the local banks, which meant Greek banks had to promptly find the money to pay their depositors lest a countrywide bank run developed which would then result in a Europe-wide financial panic, and ii) the soaring notional amount of non-performing "bad" loans, which remained as placeholders on the bank balance sheets, market at whatever mythical number the local accounts let the banks mark them at, but which generated zero inbound cash flows. Which, incidentally, would mean that deposits were undercollaterialized, and the realization that NPL levels are stratospheric and going higher, would lead to i) and the appropriate dire consequences. Which brings us to the topic of today's post. Moments ago, Greek Kathimerini reported that in 2012, the amount of non-performing loans has exploded by a laughable amount, rising some 50% from December 2011, when it was "only" 16% and stood at 24% last month. And therein lies the rub, because as Kathiermini prudently notes, the "bad loans come to a considerable 55 billion euros. This means that the sum of NPLs already exceeds the total funds set aside for the recapitalization of the local credit system, which amounts to €50 billion." Oops. This means that not only every single euro allotted for the bailout of the Greek banking sector has been used up to plug a gaping NPL shortfall, but already Greece is €5 billion short. Sure enough, the last thing Kathimerini would want to do is give people the impression that, once again, their deposits are effectively impaired with the soothing proclamation that "there has been a notable improvement in economic conditions that is reflected in the significant slowdown in the rate of creation of new bad loans." So 16% to 24% is a slow down? Maybe the fact that Greek unemployment is rising at "just" 1% of total each month is also a "notable improvement." No, we doubt Kathimerini would be so audacious to proclaim the above chart of Greek unemployment as "notably improving". But that's a problem, because the level of NPL, the level of unemployment, and the general state of the economy (whose Q3 GDP imploded by 7.2%, the worst quarterly drop following a 6.7% GDP decline in Q1, and 6.3% in Q2) are closely linked, and one can't improve without the other. And usually the catalyst the drives an overall bounce in the economy is some endo- or exogenous source of money demand and creation (usually for nations in depression it involves war). Absent that, there can be no improvement. Which, following the preceding optimism, is precisely what the Kathimerini author admits: "However, unless the growth of new NPLs is contained, banks may need yet another recapitalization process at the end of 2013, the same sources say." In other words, dear Germans, the country that you, and everyone else, though is now saved and needs no more bailouts, at least according to the current Finance Minister, not the previous one who now it appears was avoiding paying his taxes like the plague (ah yes, the Greek tax collections "issue" - a fun topic for another day), is already down €5 billion and in need of bailout Number 4. Expect this news to be sprung on a witless Germany in the coming months, but most likely not before the Merkel reelection. After all the last thing Germany needs to understand is that the hundreds of billions "invested" to preserve the Eurozone have achieved precisely nothing, and the gaping black hole is bigger and blacker than ever before. But at least the hedge funds who bought worthless Greek bonds at 15 cents on the euro and made three times their money in three month, are happy. Everyone else, i.e. the Greek people, good luck. For the fourth time.